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ETFs to Gain or Lose if Trump Wins Presidential Election

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With less than six months left for the elections, Americans are carefully watching every event and its impact on the market. While the chance of Hillary Clinton, the Democratic candidate, winning increased to 73% from 64% on March 1, the Republican front-runner Donald Trump is lagging with his popularity dropping to 27% from 36% on March 1, as per the PredictWise. The latest Reuters/Ipsos poll showed Clinton leading Trump by 10 percentage points nationally in the general election battle.

This is because many analysts and forecasters believe that the global economy will go into a protracted recession within 18 months and the stock market will drop with Trump’s victory. Larry Summers warned that a Trump presidency would be a disastrous for the U.S. economy as some economic and foreign policies such as $10 trillion in proposed tax cuts, curtailing U.S. trade with the world, scrapping the proposed Trans-Pacific Partnership trade deal, and imposing high tariffs on Chinese and Mexican imports would send the economy into a deep recession.

Further, the hostile policies if implemented will led to bad relationship with China and the rest of the world, resulting in a trade war. Top Republican business executives Mitt Romney and Meg Whitman also believe that Trump would cause a recession.

If Republicans take control of the White House, then the stock market might not perform as well as under the Democratic administration. As per the New York-based Stock Trader's Almanac, there have been 14 recessions and 18 bear markets under the Republicans compared to seven recessions and 16 bear markets under the Democrats (read: U.S. Equity ETFs Top Asset Flows Last Week).

According to Wedbush's director of equity sales trading, stocks will fall 50% if Donald Trump becomes the president. Billionaire businessman Mark Cuban also predicts huge losses for stocks if Trump is elected. The stock market could tumble by more than 20%, ending the bull market for over the last seven years. As a result, the ultra popular broad market ETF SPDR S&P 500 SPY, which tracks the S&P 500 index, will see huge losses. The fund has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.

Apart from the broader market, the healthcare sector in particular will suffer the most as Trump calls for the complete elimination of Obamacare. Repealing Obamacare would raise the number of Americans without insurance by 24 million and increase the deficit by $137 billion over 10 years, according to a June 2015 report by the nonpartisan Congressional Budget Office. This could negatively impact SPDR S&P Health Care Services ETF XHS, which tracks the performance of companies in healthcare services, healthcare facilities, managed healthcare and healthcare distributors. The ETF has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a Medium risk outlook.

Additionally, the drug re-importation idea of Trump will hurt the profit margins of pharma companies. This could weigh on the performance of pharma ETFs – PowerShares Dynamic Pharmaceuticals Fund PJP, iShares U.S. Pharmaceuticals ETF IHE, SPDR S&P Pharmaceuticals ETF XPH and Market Vectors Pharmaceutical ETF PPH. While PPH has a strong Zacks ETF Rank of 2 or ‘Buy’ rating, PJP, IHE and PPH have a Zacks ETF Rank of 3 (read: Trump Healthcare Reforms: Will ETFs Gain Health or Suffer?).

Two Sectors to Flourish

Still, with Trump in office, sectors like defense and energy would get a huge boost.  

Defense and Aerospace

Trump intends to build a strong U.S. military base worldwide by creating jobs in this field, reintroducing ground troops to the Middle East and increasing patrol on the Mexican-U.S. border. In addition, Trump would increase military spending on the development of the next-generation war technology and enhancement of production of the existing weapon platforms. He would also put an end to the wasteful and corrupt practices that has unnecessarily inflated military and defense spending by three times compared to China and six times compared to Russia.

All these efforts would lift the three defense ETFs – iShares Dow Jones U.S. Aerospace & Defense Index Fund ITA,Power Shares Aerospace & Defense Portfolio PPA and SPDR S&P Aerospace & Defense ETF (XAR - Free Report) . The trio currently has a Zacks ETF Rank of 3 or ‘Hold’ rating (read: Trump or Clinton: These ETFs to Face Same Fate).

Energy

Trump is looking to reduce regulations related to the Environmental Protection Agency and ease rules for drilling in the Arctic Range or for offshore as well as for new pipeline construction. The reduced regulatory environment would be highly beneficial for oil and natural gas companies, especially when the sector has witnessed a sharp downfall due to continued oversupply concerns and weak demand.

Considering this, energy ETFs like First Trust ISE-Revere Natural Gas Index Fund FCG, SPDR S&P Oil & Gas Exploration & Production ETF XOP and First Trust Energy AlphaDEX FXN look attractive.FCG currently has a Zacks ETF Rank of 4 or ‘Sell’ rating while the other two have a Zacks ETF Rank of 5 or ‘Strong Sell’ rating (read: Best Oil Rally in 7 Years; 3 Energy ETF Winners).

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