The market largely knows what to expect from President Donald Trump: business-friendly policies, less regulation, tariffs on imports — generally, the forces that have helped define the Trump stock market.
But a few months out from the election, Democratic presidential nominee Joe Biden is up in the polls. So, what will happen to the stock market if Biden wins the general election this year?
Aleksandar Tomic, associate dean for strategy, innovation and technology at Boston College, says: «It’s not about whether Biden wins or Trump wins. It’s also about who takes the Congress; if the Senate or House or both go Republican, then that could frustrate Biden’s agenda quite a bit.»
What people want to know about how the stock market will react to a Biden victory is really: What if Biden is elected and he’s able to enact his stated platform? That’s the assumption the rest of the article works with.
The Democratic nominee has an extensive platform, so here are a few ways a Biden win may impact the markets.
Repealing Tax Cuts
David Kass, a clinical professor of finance at the University of Maryland’s Robert H. Smith School of Business, speaks to Biden’s plan to reverse the 2017 tax cuts, which slashed corporate rates from 35% to 21%. Biden has called for raising the corporate rate to 28%.
«The increased tax rates will result in lower profits and likely lower share prices,» Kass says. «This effect may be more than offset by a larger fiscal stimulus package passed by Congress and better trade relations with countries in Europe as well as with China.»
If elected, Biden has vowed to expand the Affordable Care Act, the health care overhaul that former President Barack Obama signed into law in 2010.
«Typically this would be bullish for health care stocks such as pharmaceuticals and biotechnology firms, but this positive effect could be potentially offset by a focus on lower drug pricing,» says Will Reese, director of equity research at UMB Bank.
[READ: Fractional-Share Investing — Where to Invest.]
Lower drug prices, at least when it comes to Medicare, are a crystal clear priority for the Democratic nominee. Medicare is the federal health care insurance program for people aged 65 and older, and for those with certain disabilities.
«The Biden plan will repeal the existing law explicitly barring Medicare from negotiating lower prices with drug corporations,» the campaign site reads.
«This in turn might lead to lower profits for pharmaceutical companies and lower share prices,» Kass says.
One can look to recent history to see that drugmakers — especially some biotech companies with wildly expensive therapies — can be very sensitive to the electoral landscape. In September 2015, biotech stocks took a sharp hit based on a single tweet from former Secretary of State Hillary Clinton during her presidential bid.
Clinton tweeted: «Price gouging like this in the specialty drug market is outrageous,» in regard to a life-saving drug that had surged from $13.50 a pill to $750 a pill overnight. She vowed to lay out a plan to combat it. It was a response to when Martin Shkreli, then Turing Pharmaceutical’s CEO, raised the price of Daraprim drastically.
In terms of biotech, iShares Nasdaq Biotechnology ETF (ticker: IBB), the largest biotech ETF on the market, fell almost 5% on Sept. 21 on the day of that tweet. The day after Clinton was defeated, IBB rose 9%, sparking a bullish streak in biotech.
Although Biden’s plans in health care may be a bit more nuanced, drug companies are certainly sensitive to politics. That said, health care is a diverse sector, and Biden’s policies may benefit other corners of that sector.
RBC Capital Markets recently named acute care hospital operator HCA Healthcare ( HCA) and revenue cycle management company R1 RCM ( RCM), among others, as health care stocks poised to benefit from a Biden administration.
Infrastructure and Energy
One of the centerpieces of Biden’s platform is a focus on infrastructure spending and investing in sustainability and clean energy.
«Eventually we could see an infrastructure package totaling over $1 trillion. This would benefit the industrial and material sectors that produce heavy equipment or produce materials for roads and bridges,» Reese says.