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A Biden Presidency in the Making? ETF Strategies to Follow
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Chances of Democrats taking over the House and Senate in November are rising. Per the asset management company DWS, there is a “60% probability of Biden winning the Presidency and a 42% chance for Democrats winning the Presidency and both Houses of Congress.” So, investors must be interested in knowing about Biden’s political strategy and its impact on the investment world.
Biden Wants Tax Hike: Good for US Manufacturing & Infrastructure?
His winning means the partial rollback of President Trump’s Tax Cuts and Jobs Act. Notably, President Trump’s tax law lowered the corporate tax rate from 35% to 21%, starting 2018. Analysis by the Tax Foundation reveals that Biden’s plan is to hike the corporate tax rate to 28%.
Biden is also proposing to levy a minimum tax rate of 15%, a potentially damaging outcome for some major companies that pay little in taxes. Biden's tax plan points at revenues needed to pay down the huge debt incurred to fight the recession.
While tax hike is a negative for Wall Street, Biden’s push for tax incentives will encourage domestic manufacturing. Biden proposed a $1.3-trillion infrastructure overhaul last year. The Democratic presidential candidate’s campaign aims to invest in restoring highways, roads and bridges, changing water pipes, building out rural broadband access and updating schools and etc.
The proposals should boost ETFs like iShares U.S. Infrastructure ETF (IFRA - Free Report) and Invesco Dynamic Building & Construction ETF (PKB - Free Report) and First Trust RBA American Industrial Renaissance ETF (AIRR).
Clean Energy in Sweet Spot
Like many other democratic leaders, Biden is a proponent of clean energy investing. If Democrats rule the Congress and White House again, the stocks in the space will get a boost. Biden is forming a plan — a Clean Energy Revolution — to address the issue of climate emergency. He sees America becoming a 100% clean energy economy with net-zero emissions no later than 2050.
The move could further benefit stocks like First Solar Inc. (FSLR - Free Report) or electric vehicle giant Tesla (TSLA) and ETFs like Invesco Solar ETF (TAN) and iShares Global Clean Energy ETF (ICLN - Free Report) . The United States has about 40% exposure to the global fund ICLN.
Another Strong Spell for Big Tech?
Biden’s foreign policy appears to be more liberal than Trump’s. So, pro-immigrant hiring policies (tech companies are highly immigrant-reliant) and moderate antitrust scrutiny would likely boost Amazon.com Inc. and other Big Tech companies in the Biden era,per many policy analysts, as quoted on S&P Global. This along with better relations with China will provide another tailwind to tech shares.
Amazon has solid exposure to funds like Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report) while tech funds like Technology Select Sector SPDR Fund (XLK - Free Report) are heavy onMicrosoft and Apple.
Will Dollar Weaken?
Rock-bottom interest rates, higher taxes, ebbing tensions with China and a relatively tepid Wall Street could result in the weakness in the greenback if Biden wins, although that could be tempered by a big fiscal stimulus, per foreign exchange analysts as quoted on S&P Global .
A weaker dollar would make U.S. exports cheaper, benefiting large-cap stocks with greater exposure to foreign markets. This will also narrow the widening trade deficit. However, we do not expect the weakness to be too grave to hurt the greenback and question its safe-haven status.
So, investors looking to play the likely weakness in the U.S. dollar could consider inverse-dollar ETF Invesco DB US Dollar Index Bearish Fund (UDN - Free Report) , large-cap ETF SPDR S&P 500 ETF Trust (SPY - Free Report) and gold bullion ETF SPDR Gold Trust (GLD - Free Report) . Notably, metal investing is great in a weaker dollar environment as these commodities are priced in the greenback (read: Winning ETF Strategies to Fight a Weak Dollar).
Banks: Short-Term Gain/Long-Term Pain?
Banks were a key beneficiary in the lower-tax environment. Big U.S. banks have enjoyed an average 13% increase to earnings per share from the lower rate, per Goldman Sachs. Banks also enjoyed easing of regulatory stringencies in recent years.
However, under Biden's plan of tax hike, 10 largest U.S. banks may see their combined annual net income decline by more than $7 billion, according to an S&P Global Market Intelligence analysis. However, many banks have significant deferred tax assets, per the above-mentioned analysis. The impact of higher income taxes will make deferred tax assets more valuable and favor tangible book values – a coveted metric investors are currently looking at, per the article. So, SPDR S&P Bank ETF (KBE) may see short-term gain but long-term pain.
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A Biden Presidency in the Making? ETF Strategies to Follow
Chances of Democrats taking over the House and Senate in November are rising. Per the asset management company DWS, there is a “60% probability of Biden winning the Presidency and a 42% chance for Democrats winning the Presidency and both Houses of Congress.” So, investors must be interested in knowing about Biden’s political strategy and its impact on the investment world.
Biden Wants Tax Hike: Good for US Manufacturing & Infrastructure?
His winning means the partial rollback of President Trump’s Tax Cuts and Jobs Act. Notably, President Trump’s tax law lowered the corporate tax rate from 35% to 21%, starting 2018. Analysis by the Tax Foundation reveals that Biden’s plan is to hike the corporate tax rate to 28%.
Biden is also proposing to levy a minimum tax rate of 15%, a potentially damaging outcome for some major companies that pay little in taxes. Biden's tax plan points at revenues needed to pay down the huge debt incurred to fight the recession.
While tax hike is a negative for Wall Street, Biden’s push for tax incentives will encourage domestic manufacturing. Biden proposed a $1.3-trillion infrastructure overhaul last year. The Democratic presidential candidate’s campaign aims to invest in restoring highways, roads and bridges, changing water pipes, building out rural broadband access and updating schools and etc.
The proposals should boost ETFs like iShares U.S. Infrastructure ETF (IFRA - Free Report) and Invesco Dynamic Building & Construction ETF (PKB - Free Report) and First Trust RBA American Industrial Renaissance ETF (AIRR).
Clean Energy in Sweet Spot
Like many other democratic leaders, Biden is a proponent of clean energy investing. If Democrats rule the Congress and White House again, the stocks in the space will get a boost. Biden is forming a plan — a Clean Energy Revolution — to address the issue of climate emergency. He sees America becoming a 100% clean energy economy with net-zero emissions no later than 2050.
The move could further benefit stocks like First Solar Inc. (FSLR - Free Report) or electric vehicle giant Tesla (TSLA) and ETFs like Invesco Solar ETF (TAN) and iShares Global Clean Energy ETF (ICLN - Free Report) . The United States has about 40% exposure to the global fund ICLN.
Another Strong Spell for Big Tech?
Biden’s foreign policy appears to be more liberal than Trump’s. So, pro-immigrant hiring policies (tech companies are highly immigrant-reliant) and moderate antitrust scrutiny would likely boost Amazon.com Inc. and other Big Tech companies in the Biden era,per many policy analysts, as quoted on S&P Global. This along with better relations with China will provide another tailwind to tech shares.
Amazon has solid exposure to funds like Fidelity MSCI Consumer Discretionary Index ETF (FDIS - Free Report) while tech funds like Technology Select Sector SPDR Fund (XLK - Free Report) are heavy onMicrosoft and Apple.
Will Dollar Weaken?
Rock-bottom interest rates, higher taxes, ebbing tensions with China and a relatively tepid Wall Street could result in the weakness in the greenback if Biden wins, although that could be tempered by a big fiscal stimulus, per foreign exchange analysts as quoted on S&P Global .
A weaker dollar would make U.S. exports cheaper, benefiting large-cap stocks with greater exposure to foreign markets. This will also narrow the widening trade deficit. However, we do not expect the weakness to be too grave to hurt the greenback and question its safe-haven status.
So, investors looking to play the likely weakness in the U.S. dollar could consider inverse-dollar ETF Invesco DB US Dollar Index Bearish Fund (UDN - Free Report) , large-cap ETF SPDR S&P 500 ETF Trust (SPY - Free Report) and gold bullion ETF SPDR Gold Trust (GLD - Free Report) . Notably, metal investing is great in a weaker dollar environment as these commodities are priced in the greenback (read: Winning ETF Strategies to Fight a Weak Dollar).
Banks: Short-Term Gain/Long-Term Pain?
Banks were a key beneficiary in the lower-tax environment. Big U.S. banks have enjoyed an average 13% increase to earnings per share from the lower rate, per Goldman Sachs. Banks also enjoyed easing of regulatory stringencies in recent years.
However, under Biden's plan of tax hike, 10 largest U.S. banks may see their combined annual net income decline by more than $7 billion, according to an S&P Global Market Intelligence analysis. However, many banks have significant deferred tax assets, per the above-mentioned analysis. The impact of higher income taxes will make deferred tax assets more valuable and favor tangible book values – a coveted metric investors are currently looking at, per the article. So, SPDR S&P Bank ETF (KBE) may see short-term gain but long-term pain.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>