US Election 2024: How the Results Could Reshape the Stock Market

With the US election just weeks away, investors are anxiously anticipating the outcome, as the next president and Congress could significantly impact various sectors of the stock market. Bank of America, in a recent note, emphasizes that while strong profit growth remains paramount, political dynamics can create winners and losers. The firm’s analysts have outlined potential scenarios and their implications, suggesting a shift towards a stock-picker’s market where informed decisions are crucial. Volatility is expected to increase as the election nears, making strategic investment approaches even more important.

Key Takeaways: What Investors Need to Know

• Election outcome significantly impacts specific sectors: Different scenarios—a Harris presidency with a split Congress, a Democratic sweep, a Trump presidency with a split Congress, or a Republican sweep—each predict distinct winners and losers across various market sectors.
• Tech and media face regulatory uncertainty: The regulatory environment for Big Tech and media companies hangs heavily in the balance, with potential for increased antitrust scrutiny or changes to the operating environments of businesses.
• Health care is a battleground: The future of Medicaid expansion and Medicare Advantage programs, corporate income tax rates and the fate of the Affordable Care Act are major factors influencing healthcare stocks.
• Financial sector’s fate tied to regulation: Bank stocks and the payments industry are particularly vulnerable to changes in regulation, with potential for both positive and negative impacts depending on the election result.
• Trade policy impacts specific industries: Tariffs, near-shoring, and immigration policies significantly affect industries like retail, manufacturing, and homebuilding.

A Harris Presidency: Diverging Paths Depending on Congressional Control

Harris Presidency and a Republican-Controlled Congress

Bank of America analyst Justin Post believes a Harris victory coupled with a Republican Congress presents a potentially favourable scenario for **online media companies**. **A potential TikTok ban, favored by Harris**, could benefit competitors like **Meta Platforms (META)** and **Snap (SNAP)**. However, this potential gain is countered by the fact that while a Democratic-led Department of Justice is likely to continue **antitrust pressure on Big Tech (GOOGL, META, AMZN)**, a split Congress makes sweeping legislative changes less likely. Conversely, Harris’s proposed increase in the **corporate income tax rate to 28%** could negatively impact retailers with significant domestic exposure, including companies like **Lululemon Athletica, American Eagle Outfitters, Gap, Urban Outfitters, Ulta Beauty, and Five Below.** On the other hand, **expansion of Medicaid coverage** under Harris could boost healthcare facility stocks like **Tenet Healthcare and Universal Health Services**, while potentially hurting **managed care companies (UnitedHealth Group, Agilon Health, Humana)** due to potential changes to Medicare Advantage. **”Democrats have been more focused on potential overpayments and implementation of more regulations to govern how business is run. President does not need congress to influence rates and regulations,”** wrote analyst Joanna Gajuk.

Harris Presidency and a Democratic Sweep

A complete Democratic sweep dramatically alters the regulatory landscape. Analyst Jessica Reif Ehrlich foresees heightened regulation for **telecom and cable companies**. **Media consolidation could be stifled,** and **Big Tech would face more aggressive regulatory pressure.** While the short-term effects for companies like **Snapchat, Meta, and Alphabet** might include increased value due to a potential TikTok ban and lack of fierce competition, the long-term impact warrants careful consideration. In the short term, Meta and Alphabet have reason to rejoice as they could benefit from a TikTok ban. However, the payments sector sees this scenario as “**the worst-case scenario**,” according to analyst Jason Kupferberg, citing the potential passage of the **Credit Card Competition Act**, which aims to increase competition in the credit card market. Gig economy companies like **Uber and Lyft** are also at risk under such conditions.

A Trump Presidency: Navigating Political Gridlock and Republican Control

Trump Presidency and a Split Government

Analyst Ebrahim Poonawala considers a Trump victory with a divided Congress the **best-case scenario for bank stocks.** The reduced risk of stringent regulations, potential for increased **mergers and acquisitions (M&A) activities**, and a decreased likelihood of tax increases are cited as supporting factors. Compromise on the **Inflation Reduction Act (IRA)** is expected, but a total repeal isn’t anticipated. However, managed care companies heavily involved with health insurance exchanges and Medicaid could face headwinds, as Trump’s policies might **undermine Medicaid funding and enrollment** and potentially end enhanced Affordable Care Act exchange subsidies prematurely. This scenario could negatively affect companies like **Oscar Health and Centene**. Conversely, **gig economy companies (Uber, Lyft)** could benefit from a more business-friendly approach perceived as pro-growth and limited labor regulation. **E-commerce companies might also see advantages from Trump’s proposed higher tariffs on Chinese imports.**

Trump Presidency and a Republican Sweep

A Republican sweep could lead to significant deregulation, potentially weakening the **Securities and Exchange Commission’s (SEC)** market structure rules, benefiting **diversified financial companies**. Increased volatility and higher deficits, however, are likely to affect **asset managers, brokers, and exchanges**, except for those benefiting from market volatility, such as **CME and CBOE**. **Live Nation Entertainment**, facing an antitrust lawsuit, could also benefit. But there is a caveat: the construction industry, with substantial reliance on foreign labor, could face **labor shortages** due to tighter immigration policies, posing a risk to **homebuilders**. Tax cuts and near-shoring, along with a weaker dollar, could favour **paperboard and packaging companies (Smurfit WestRock, Packaging Corporation of America, Graphic Packaging)**. Conversely, higher China tariffs could pose risks to specific retailers including **Skechers, Crocs and American Eagle Outfitters**.

Conclusion: A Stock Picker’s Market

Bank of America’s analysis underscores the importance of sector-specific analysis in the current climate. The uncertainty surrounding the election outcome calls for a cautious, strategic approach. The firm’s emphasis on a “stock picker’s market” reflects the diverse and potentially significant impacts different election scenarios will have on various market segments. Investors must carefully evaluate potential risks and rewards across different political outcomes to navigate this period effectively. The coming weeks will be critical in shaping the market’s response to the election results in the long run.