Don’t fear a Trump loss — a Biden win could be positive for stocks, JPMorgan says. Here’s what will outperform
By Callum Keown
A Joe Biden win in November would be ‘neutral to slightly positive’ for U.S. stocks, JPMorgan analysts said speaks about the unrest across the country from Philadelphia City Hall on June 2, 2020, in Philadelphia, Pennsylvania, contrasting his leadership style with that of US President Donald Trump, and calling George Floyd’s death “a wake-up call for our nation.” (Photo by JIM WATSON / AFP) (Photo by JIM WATSON/AFP via Getty Images)(Getty Images)
The holiday weekend has done nothing to slow the positive momentum for U.S. stocks. Strong U.S. jobs data buoyed investors on Thursday and futures are higher early on Monday, implying a 350-point gain for the Dow Jones Industrial Average (DJIA) at the open.
But coronavirus cases continue to rise, with another daily increase record for the U.S. on Friday, while election uncertainty and the risks attached also linger on the horizon. Recent national polls show Democratic presidential nominee Joe Biden ahead of President Donald Trump. Analysts and investors have viewed some of Biden’s policies as being potentially damaging to Wall Street.
In our call of the day, JPMorgan strategists said, contrary to the current consensus, a Biden win in November would be “neutral to slight positive” for equities. The Democratic nominee’s major economic policies include lifting the corporate tax rate from 21% to 28% — partially reversing Trump’s cut — and increasing the federal minimum wage. The investment bank’s U.S. equity strategy team also expected the former vice president to ease tariffs on China and increase infrastructure spending.
Presidential challengers tend to campaign at an extreme, converging to the center postelection, JPMorgan’s strategists said, adding that Biden’s policy priorities were initially set out pre-COVID-19 and would surely shift.
“Given the current economic weakness, business recovery and job growth are likely to be prioritized over policies that could dampen economic growth and perhaps even jeopardize the desired 2022 midterm election outcome,” the investment bank’s U.S. equity strategy team said in a note. The higher corporate tax rate would bring an earnings headwind of around $9 for S&P 500 (SPX) earnings per share, the strategists, led by Dubravko Lakos-Bujas, warned.
However, they said the corporate tax hike could end up with the rate being lower than 28% and would also be offset by the softening of tariffs, infrastructure spending and higher wages. “Further, a more diplomatic approach to domestic / foreign policy will likely result in lower equity volatility and risk premia,” they added.
The team’s Democratic agenda outperformers — though it stressed the agenda remains fluid — include Tesla (TSLA) and Nikola (NKLA), both benefiting from spending in alternative energy and green technologies. Biden’s health-care agenda puts Johnson & Johnson (JNJ), CVS (CVS) and others in the outperforming basket, while tariff de-escalation sees Procter & Gamble (PG), Nike (NKE), Boeing (BA), 3M (MMM) and DuPont (DD) feature.
The minimum-wage hike would have a positive impact on consumer spending and would be a net positive for S&P 500 companies despite higher costs and some employment loss, JPMorgan said. “Distinguishing winners and losers will depend on businesses who will see incremental demand due to rising disposable income, lower labor intensity (revenue/employees) and higher margins,” they said. As a result, Apple (AAPL), Facebook (FB), Alphabet (GOOG), Twitter (TWTR) and Visa (AT:VISA) all made the list of outperformers.
After strong jobs data sent U.S. stocks higher on Thursday, the Dow was set to open higher again on the other side of the Independence Day holiday weekend, as positive sentiment around the economic recovery continued. Dow futures (YM00) were up 1.4%, S&P 500 futures (ES00) rose 1.1% and Nasdaq futures (NQ00) were 1.2% higher ahead of the open. European stocks (XX:SXXP) surged early on Monday, led by banks and following a rally in Asia overnight — China’s Shanghai Composite (CN:SHCOMP) climbed close to 6%.
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The world’s second-largest cinema operator, Cineworld (UK:CINE), said on Monday that Canada’s Cineplex (CA:CGX) has started legal proceedings against it in relation to the termination last month of a proposed acquisition.
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