The broader market kicked off 2021 on a decent note after a smashing end to 2020. The S&P 500 and the Dow Jones hit new highs to close out the year. The showstopper was the tech-heavy Nasdaq. A tech-driven rally led the Nasdaq Composite to jump about
44% in 2020.
Decent earnings releases, hopes of economic recovery in 2021, positive developments on vaccines, virus relief bill and super-easy global monetary policy aided the markets in 2020 despite the COVID-19 challenges.
However, a great change has happened this month. Democrats took control of the U.S. Senate with two Georgia victories. With this, Democrats took control of both Senate and House, implying an easy passage of president-elect Joe Biden’s agendas.
Meanwhile, Deutsche Bank economists said in a note that their “U.S. economists have indicated that a Democratic Senate would likely lead to another large fiscal stimulus package, possibly including some priorities of the new administration such as infrastructure.” Deutsche Bank believes “that as a material upside to their GDP forecast, which they currently see rising 4.3% Q4/Q4 in 2021”
as quoted on Yahoo Finance.
Against this backdrop, below we highlight a few investment strategies that could be followed after a Democratic House and Senate.
Pot stocks Should be on a High
Cannabis stocks should jump ahead. Biden’s victory and Democratic power in Congress could speed up the legalization of marijuana at the federal level, thereby providing a boost to the U.S. cannabis industry. Moreover, voters in Arizona, Montana, New Jersey and South Dakota recently voted in favor of the adult use of cannabis, bringing the total number of states that have
cleared it for that purpose to 15. The industry is also thriving with mergers and acquisitions. So, bet on pot stocks like Canopy Growth Corporation ( CGC Quick Quote CGC - Free Report) (up 11.6% on Jan 6, 2021). Green Energy Stocks to Remain in the Green
The alternative energy space has always been supported by the Democratic leaders. Now that Democrats have strengthened their positions in Congress, the stocks and ETFs 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 and net-zero emissions no later than 2050. So, clean energy stocks including electric vehicles should gain ahead. Tesla Inc. ( TSLA Quick Quote TSLA - Free Report) (some gains likely after Georgia runoff results) or Lithium Americas Corp. ( LAC Quick Quote LAC - Free Report) look to be good picks now. Gold May Log a Rebound Now
Investors should note thatDemocrat Biden’s plan is to hike the corporate tax rate to 28%, which President Trump lowered from 35% to 21% in 2018. “In addition, a Democratic sweep in Georgia would likely see a boost in new government program creation and spending at a time when many voters” and market participants are worried about the inflated debt level, said the Oppenheimer strategist. All these factors could cause occasional uncertainties in the market and boost gold prices and ETFs like
SPDR Gold Shares ( GLD Quick Quote GLD - Free Report) . Manufacturing & Infrastructure Should Gain
While a tax hike is a negative for Wall Street, Biden’s push for tax incentives will encourage domestic manufacturing. Biden’s campaign aims to invest in restoring highways, roads and bridges, changing water pipes, building out rural broadband access, and updating schools among other works. Stocks like
Fastenal Company ( FAST Quick Quote FAST - Free Report) should see further gains ahead. Defense Stocks to Remain in Decent Shape Though Not Great
While Biden doesn’t expect major U.S. defense cuts, he
may face pressure from the left to roll back some increase in defense spending that Trump had vowed for. Biden intends to allocate some defense investments from “legacy systems that won’t be relevant” to “smart investments in technologies and innovations — including in cyber, space, unmanned systems and artificial intelligence,” as quoted on defensenews.com. Consumer Stocks to Remain Affluent
Biden’s plan is to raise the federal minimum wage to $15 an hour from $7.25. If this happens, low-income consumers’ standard of living will get a boost. Thus, discount retailers’ stocks like
Dollar Tree Inc. ( DLTR Quick Quote DLTR - Free Report) should see smooth trading ahead. Staples ETFs like Consumer Staples Select Sector SPDR Fund ( XLP Quick Quote XLP - Free Report) too should gain traction. Value to Prevail Over Growth
Value stocks suffered a lot last year. But with risk-on sentiments gaining the upper hand now, investors should see value investing roaring ahead. Value stocks or the ones that were battered in the peak of the virus chaos, now will take advantage of their undervaluation. So, one can bet on
SPDR Portfolio S&P 500 Value ETF ( SPYV Quick Quote SPYV - Free Report) . Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time. See 8 breakthrough stocks now>>