Potential sector impacts of the presidential election

David Joy, Chief Market Strategist — Ameriprise Financial

Although the presidential election is weeks away, there’s no better time to talk with your advisor as you consider the potential implications for equity sectors, industries and taxes. The differences between the two presidential candidates are distinct enough to allow for the following general observations.

Current administration

Lower corporate taxes — a centerpiece of the Trump administration’s policy agenda — were accomplished early in the term with the passage of the Tax Cut and Jobs Act of 2017. It lowered the statutory corporate tax rate from 35% to 21%, providing an immediate earnings boost to companies across the board.

The administration’s spending priorities resulted in higher defense expenditures, which benefited the aerospace and defense industries. A de-emphasis of environmental restrictions has, in certain instances, aided the Industrials sector. Fossil fuel companies have generally profited from less emphasis on alternative energy sources, vehicle mileage mandates and climate issues in general. Companies in the Information Technology sector, for example, also generally enjoyed a lighter regulatory approach.

For the Health Care sector, the administration’s policy has been a mixed bag. The Affordable Care Act has faced opposition, and prescription drug prices are under the threat of reform. Nevertheless, we find a number of attractive companies in the areas of medical technology, pharmaceuticals, biotechnology and insurers. In our view, the sector offers investment opportunities from a longer-term perspective, given aging societies globally.

Challenger administration

Former Vice President Biden’s proposed tax and spending priorities are quite different compared to those of the current administration. He proposes to roll back part of the current corporate tax cut by raising the statutory rate to 28%. While few companies actually pay taxes at that rate, aggregate corporate after-tax earnings could likely experience a modest decline, all else being equal.

In terms of spending, the presidential challenger has proposed $2 trillion in environmentally friendly infrastructure projects over four years. Passing the plan is dependent on a unified control of government instead of the current divided partisan control.

That said, the proposals may benefit a range of industries, including alternative energy producers such as wind, solar and biofuels. Conversely, fossil fuel companies could be relatively disadvantaged. Support for electric vehicle and battery manufacturers might simultaneously impact traditional vehicle manufacturers.

Construction and engineering companies might also benefit from infrastructure initiatives, while defense industries might experience a decline in spending priority.

Providers in the Health Care sector could benefit from the expected focus on medical services for children and older adults. And educators may benefit from the proposed universal preschool plan. Conversely, companies in the Information Technology sector may be subject to additional regulatory oversight.

Meaningful changes to the individual tax code have also been proposed. Mid- to low-income taxpayers might receive, for example, an expanded child and dependent care credit and enhanced tax breaks for 401(k) accounts.

However, the primary burden of tax proposals would fall on individuals earning more than $400,000. For those earning in excess of $1 million, changes to capital gains and dividend taxation could be meaningful. That may affect the spending patterns of those most directly affected, to the detriment of luxury goods manufacturers and other companies in the Consumer Discretionary sector, at least at the margin.

Support from an Ameriprise advisor

In summary, there are material, differing revenue and spending priorities for the two presidential candidates. Investors would be well served to begin thinking about the implications of possible changes to their tax and investment strategies. A conversation with your Ameriprise advisor will help you prepare should those changes become reality.