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Investing Strategies to Follow on Democratic Senate and House

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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 - 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 - Free Report) (some gains likely after Georgia runoff results) or Lithium Americas Corp. (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 - 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 - 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 - Free Report) should see smooth trading ahead. Staples ETFs like Consumer Staples Select Sector SPDR Fund (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 - Free Report) .

Biggest Tech Breakthrough in a Generation

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