A victory by Democrat candidate Joe Biden in November’s US presidential election would likely have significant implications for tech and energy stocks while healthcare would initially be relatively untouched, according to BlackRock analysts.
While it has to be kept in mind that incumbent president Donald Trump defied the pollsters in 2016, the latest polls suggest that Biden would win if the election were held today.
The two candidates have significantly different policy platforms, with Trump’s revolving around his ‘Make America Great Again’ and law & order agendas while Biden’s more progressive message focuses on issues like climate change, raising the minimum wage and undoing some of Trump’s immigration policies.
The FT’s 2020 US election polls tracker
With a victory for Biden looking likely, BlackRock examines the likely implications this would have for critical sectors like energy, tech and healthcare, along with revealing the opportunities its strategists see in each space.
BlackRock argued that a Biden victory, combined with the Democrats taking control of the Senate, would accelerate the shift towards sustainability that is already in play. Biden’s climate policy focuses on four areas: electric power, transport, buildings and research & development (R&D) spending.
The US has seen steady growth in the share of electricity generated by renewable sources, with US Energy Information Administration showing that this grew from 10 per cent in 2010 to 17 per cent in 2019.
US electricity generation by major energy sources, 1950-2019
Source: BlackRock Investment Institute, US Energy Information Administration, as at October 2020
BlackRock expects a Biden victory and Democratic clean sweep would drive the decarbonisation of the power sector by expanding tax credits for renewable power sources and other zero-carbon industrial sources such as carbon sequestration.
In addition, the Biden campaign has proposed investing to reduce emissions in the transport sector and to retrofit commercial and municipal buildings to increase their energy efficiency.
While sectors such as solar appear to have already priced-in the transition to clean energy, BlackRock sees opportunities in related areas such as energy-efficient technologies and offshore wind power.
“How much of Biden’s climate policy proposal would become reality if he won the election? A Democratic sweep would likely lead to a large boost to public investment in clean energy. Fiscal spending would be significantly more constrained under a Biden win with divided government,” the asset management house added.
“Much could still happen on the regulatory front, such as tightening rules on oil & gas exploration, production and transmission. A crackdown on drilling and pipeline permits could constrain US shale supply and push oil prices up, especially as demand recovers post-Covid. Yet any spike in oil prices may not be sustained given the prospect of an accelerating shift to clean energy in the transport sector.”
That said, the firm expects to see opportunities in private markets across renewables, digital infrastructure and transport regardless of the election result, given the strength of the structural shift to sustainability.
The technology sector, which has powered the market gains of recent years including 2020’s coronavirus crisis, is another that has been thrown into the spotlight by the US presidential election.
Regulation of the tech sector is a rare issue that both the Democrats and Republicans share, given widespread concerns around data privacy and market power.
Performance of US tech stocks vs wider market over 5yrs
Source: FE Analytics
However, BlackRock thinks that a Biden administration would be more willing to bring in more strenuous antitrust reviews than the Trump government. These could include looking at issues such as platform power and wages.
“Tax reforms in a Democratic sweep scenario could also weigh in particular on global tech giants,” the firm’s strategists added. “We view the regulatory risks faced by mega-cap tech companies as manageable overall, as many have already adjusted to tougher data privacy rules in Europe.”
While recent market leadership has been clustered into a few mega-cap tech names, the asset manager also thinks this could broaden out to cover a wider range of themes, including 5G connectivity.
It also believes that software and semiconductor firms could “lead the charge” as they face fewer regulatory risks and enjoy long-term growth trends. Meanwhile, some tech companies may benefit from the clean energy transition and a shift toward greater energy efficiency.
While the healthcare sector was a principal focus of the policy discussion in the early days of both the Obama and Trump administrations, healthcare policy is expected to be relatively stable in the first year of a potential Biden government.
BlackRock believes that the response to the coronavirus pandemic, economic recovery and climate-related initiatives would likely take priority for Biden in 2021, rather than changes to healthcare policy.
However, the firm does see one risk to this outlook. “The Supreme Court is scheduled to hear a case on the Affordable Care Act a week after the election, potentially pushing the healthcare debate back to the front burner,” it explained.
“Measures to curb drug price increases are a potential focus – regardless of the election result. Yet we would expect only modest action against the backdrop of the pandemic, as drugmakers are playing an important role in vaccine development and Covid response.”
Overall, BlackRock favours investment opportunities in medical devices, life sciences and diagnostics companies, as well as some diversified large-cap pharmaceuticals in Europe.