By Lewis Krauskopf
NEW YORK (Reuters) - Tuesday's presidential election between President Donald Trump and former Vice President Joe Biden could have dramatic effects on various stocks and sectors, and investors have spent months trying to identify potential winners and losers.
A group of stocks seen benefiting from Biden's Democratic policies has outperformed those seen benefiting from Republican Trump. Over a two-month period that ended Wednesday, a "Biden basket" of stocks created by JPMorgan (NYSE:JPM) head of U.S. equity strategy Dubravko Lakos gained 4.5% versus a 16% drop for a "Trump basket."
Here is a look at stocks that might fit best in a Biden or Trump portfolio:
BIDEN BASKET
ALTERNATIVE ENERGY: A strong "green energy" push expected under a Biden administration would support alternative energy stocks. Green energy stocks have already soared in anticipation of Biden and Democrats faring well on Tuesday. The Invesco Solar ETF (P:TAN) climbed about 40% from roughly mid September to mid October, but has pulled back more recently.
ETFs to watch: Invesco Solar ETF (P:TAN), iShares Global Clean Energy ETF (O:ICLN)
INFRASTRUCTURE: A Democratic sweep "would likely mean a large scale infrastructure bill that should be placed at the forefront of restarting the U.S. economy," Deutsche Bank (DE:DBKGn) International Private Bank said in a recent report.
JP Morgan lists Vulcan Materials (N:VMC), Jacobs Engineering Group (N:J) and Caterpillar (N:CAT) among the infrastructure stocks in its "Biden basket."
ETFs to watch: iShares US Infrastructure ETF (N:IFRA), SPDR S&P Kensho Intelligent Structures ETF (N:SIMS), Global X US Infrastructure Development ETF (N:PAVE)
FISCAL BUMP: Analysts view a Democratic sweep as the surest path to a massive coronavirus relief package to help stimulate the economy. Such a package could especially benefit small-cap shares and finally fuel a long-awaited rotation into value stocks.
ETFs to watch: iShares Core S&P Small-Cap ETF (P:IJR), iShares Russell 1000 Value ETF (P:IWD)
TARIFF TENSIONS: A Biden administration is expected to ratchet down tensions in the U.S.-China tariff war.
"Improved trade would benefit exports, which would benefit many U.S. materials companies, including exporters of agricultural products and grains," Columbia Threadneedle Investments said in a recent presentation.
ETFs to watch: iShares China Large-Cap ETF (N:FXI)
MARIJUANA: U.S.-listed shares of major cannabis producers surged after the vice presidential debate, when Biden's running mate Kamala Harris said marijuana would be decriminalized at the federal level under a Biden administration. That prospect has boosted stocks in the sector.
ETFs to watch: ETFMG Alternative Harvest ETF (P:MJ)
Graphic: Trump vs Biden stock baskets - https://fingfx.thomsonreuters.com/gfx/mkt/jbyprxamgpe/Pasted%20image%201604092623457.png
TRUMP TRADE
BANKS: Along with higher corporate taxes, banks could face concerns over more regulations under a Biden administration. Banks in a second Trump term, "could see added tailwinds from a continued 'light touch' on regulation and a push to reduce taxes," Ameriprise Financial (NYSE:AMP) said in a report.
JP Morgan lists Bank of America (N:BAC), Wells Fargo (N:WFC) and Citigroup (N:C) in its "Trump basket" of stocks.
Should Biden win, analysts do see a silver lining for banks because they could benefit from a hefty stimulus package and potentially steeper bond yields.
ETFs to watch: SPDR S&P Bank ETF (P:KBE), Invesco KBW Bank ETF (O:KBWB)
FOSSIL FUEL: A Trump win "could lead to a friendlier tax and regulatory environment for the traditional energy industry," Allianz (DE:ALVG) Global Investors said in a recent report.
While Biden has made green energy a key plank of his agenda, Columbia Threadneedle Investments said "a ban on either new leases or new permits on federal lands for energy exploration would be a significant challenge for traditional U.S. oil and gas companies."
ETFs to watch: SPDR S&P Oil & Gas Exploration & Production ETF (P:XOP)
BIG TECH: Both parties are expected to continue regulatory pressure on tech companies, but Deutsche Bank International Private Bank says the sector was "one of the biggest benefactors" of Trump's tax reform and "is also likely to benefit from a softer stance on regulation and antitrust policies."
According to Allianz, Democrats are "more likely to pursue changes in 'Big Tech' including breakups and additional regulations."
ETFs to watch: Invesco QQQ ETF (O:QQQ), Technology Select Sector SPDR Fund (P:XLK)
DEFENSE: A second-term Trump administration "would likely continue to benefit aerospace & defense," Ameriprise said in a recent report, noting that Trump would likely continue to seek higher spending on defense.
ETFs to watch: iShares US Aerospace & Defense (Z:ITA), SPDR S&P Aerospace & Defense ETF (P:XAR)
PHARMA AND BIOTECH: While both political parties have sounded off against high prescription drug prices, a Biden victory that in particular is coupled with Democrats winning the Senate could send a shudder through the highly regulated healthcare sector, so there could be some relief if Trump is re-elected.
"A Democratic sweep in November could increase the pressure on drug makers post-election," according to Ameriprise.
ETFs to watch: Health Care Select Sector SPDR Fund (P:XLV), iShares US Pharmaceuticals ETF (P:IHE)