The Investing Upsides, Downsides If Trump Is Reelected

Personal politics aside, savvy investors are looking ahead to the 2020 U.S. presidential election as the next major stock market catalyst.

The latest national polls show Democratic nominee Joe Biden leading incumbent Republican President Donald Trump by an average of 7.1%, according to FiveThirtyEight.

2016 proved that polls are far from perfect, so at this point it’s at least wise to contemplate how a potential Trump reelection might impact certain stocks, sectors and industries.

Higher Returns When Democrats In Oval Office: LPL Financial chief market strategist Ryan Detrick recently outlined the impact he believes a Trump victory would have on the stock market.

Right off the bat, Detrick said markets have historically performed slightly better under Democratic presidents than Republican ones. Since 1950, the S&P 500 has averaged a 10% annual return during Republican administrations and a 15% annual return under Democratic ones, according to Detrick.

That history certainly bodes well for the SPDR S&P 500 ETF Trust SPY as a long-term investment regardless of the election outcome.

Trump Headwinds: Detrick said the primary risk for investors if Trump returns for a second term has to do with trade and international business.

Trump has made cracking down on China a top priority of his first term, and Detrick said investors should expect that approach to continue in a second term — with or without the support of Congress.

U.S. companies that have supply chain exposure to China or have significant China sales could be negatively impacted, he said.

U.S.-listed Chinese companies may be pressured in the market or could even face potential delisting if tensions escalate, the strategist said.

Trade tensions with Europe have also been building, running the risk of digital eurozone taxes on U.S. companies and/or more U.S. tariffs on imported EU automobiles and other goods, he said.

Finally, Trump recently said he is considering imposing new taxes on U.S. companies that rely heavily on foreign labor. This move could create uncertainty or potential cost risks for companies that produce products outside the U.S., Detrick said.

Trump Bump? While a second Trump term would certainly create risks for certain stocks, Detrick said it could also create plenty of tailwinds.

Unlike Biden, Trump has no plans to raise corporate taxes. Trump has also been adamant about corporate deregulation, particularly in the struggling energy sector.

Trump has also been in favor of aggressive fiscal stimulus and monetary policy to support job growth, and he has said infrastructure spending could be a top goal of a second term.

Trump has said he wants a $1-trillion, 10-year infrastructure spending plan — a promise he originally made to voters back in 2016. 

“Continuity on taxes and regulation if Trump were reelected would likely at least be market neutral, with strong potential to be market positive if not offset by the impact of trade,” Detrick wrote.

Related Links:

Investing Upsides And Risks Of A Biden Presidency

Why The Federal Reserve's New Approach To Inflation Makes Sense

President Donald Trump in the Oval Office on Aug. 13. White House photo by Joyce Boghosian.