4 areas of the market set to surge if Trump wins the election — and 3 poised to benefit from a Harris victory

With less than 100 days until the US presidential election, investors are watching the race carefully.

Whoever takes the Oval Office in November will have noticeable implications for markets, according to $930 billion DWS Group’s Americas Chief Investment Officer David Bianco. He’s predicting that the S&P 500 will hit 5,500 by year-end after a Trump victory and 5,100 after a Harris win.

But it’s not as simple as equating a Republican victory to a better stock market and vice versa. While the equity market overall might perform better under Trump, DWS Group sees investment opportunities regardless of who wins the presidency.

Deregulation and drilling under Trump

It’s no secret that Trump’s policies would loosen regulations on businesses. He’s been adamant about lowering taxes and cutting regulatory red tape.

According to Bianco, lower taxes would greatly benefit small-cap stocks, which have been climbing recently. Larger companies typically generate more revenue overseas and can lessen their effective tax burdens, while small-caps are more heavily concentrated domestically and are subject to higher taxes.

And since small-caps usually carry more debt on their balance sheets, reduced taxes will increase cash flow and provide a bigger boost to them. Should Trump win the presidency and maintain or lower taxes, small-caps would disproportionately benefit. The reverse is true if Harris takes office and raises taxes.

In Bianco’s view, the continued performance of small-caps rests heavily on a Trump victory. “I would argue that small-caps really are dependent on Trump winning,” he said.

Bianco believes oil and gas would also benefit from a Trump presidency. Trump has been especially enthusiastic about supporting the fossil fuel industry, promising voters at the Republican National Convention that he would lower the cost of energy by spurring domestic production of oil and gas.

Bianco also identified two other areas of the market that would perform under Trump: financials and pharmaceuticals. These two sectors are heavily regulated and will see outsize benefits from a more laissez-faire, hands-off Republican administration.

Big banks in particular will benefit from lessened scrutiny on capital and lending requirements, as well as any bank mergers. Trump also hasn’t made drug prices or pharmaceutical regulation a significant part of his platform, meaning that pharmaceutical companies will, similar to big banks, receive less scrutiny regarding mergers and acquisitions and other business activities. On the contrary, Harris certainly has: Bianco points to Harris’ California attorney general track record of taking on Big Pharma on topics of drug pricing reform.

When it comes to investing in sectors such as financials and energy under Trump, Bianco believes that size matters.

“There’s probably a little bit more upside if Trump does win on small caps, particularly at energy and financials,” he said. “But I would argue you’re better off with oil service companies and large banks, large capital markets firms rather than small banks and small energy companies.”

Investors interested in taking advantage of the Trump trade can increase their exposure to small-caps, pharmaceuticals, financials, and energy through funds such as the iShares Russell 2000 ETF (IWM), the VanEck Pharmaceutical ETF (PPH), the Vanguard Financials ETF (VFH), and the Energy Select Sector SPDR Fund (XLE).

Harris: Rates, renewables, and REITs

There’s also ample opportunity for investors to take advantage of a Harris win.

A Harris presidency would benefit the renewable energy industry,according to Amanda Rebello, head of Xtrackers ETF sales at DWS.

“From the Democratic perspective, the green agenda still seems to be very much there,” she said. Harris is expected to continue Biden’s push to transition the economy towards more green energy.

In particular, Rebello flags certain commodities such as lithium and copper as investment opportunities for a green energy transition. These two metals are critical to manufacturing electric vehicles and other renewable energy applications such as wind and solar technology and energy storage.

The biggest implication of a Harris presidency would be increased oversight over the US budget and subsequently more rate cuts, according to Bianco.

“If Harris wins, it’s probably a bit better for bonds,” Bianco said.

That’s primarily because a Harris presidency would result in more stringent fiscal policy than a Trump one.

“There’s probably going to be more fiscal tightening and fiscal discipline under that scenario,” Bianco said. “In which case, the Fed’s probably in a more comfortable position to cut a few times or more.”

In Bianco’s opinion, this is because the bond market is highly impacted by foreign policy and the national deficit. If Trump does follow through with the protectionist tariff policies that he’s been touting, inflation is likely to creep up again, reducing the likelihood of a rate cut. The national debt is also likely to rise faster under a Trump presidency compared to a Harris one. Both of these factors will make inflation harder to control, resulting in less action from the Fed.

Bond prices and interest rates typically have an inverse relationship, so fixed income investors would certainly benefit from more fiscal tightening and lower rates under a Harris presidency. Lower interest rates would also spur infrastructure investment and spending.

Bianco pointed to REITs as a good investment under Harris. Real Estate Investment Trusts generally don’t pay corporate taxes and subsequently won’t be affected by any changes to the tax rate, should Harris enact legislation on that front. REITs also have the added benefit of distributing dividends to investors, providing a source of income and diversification away from traditional stocks and bonds.

Investors can prepare for a Harris presidency by adding fixed income assets such as US 10-year Treasury notes to their portfolios. Funds such as the Global X Lithium & Battery Tech ETF (LIT) and the iShares Global Clean Energy ETF (ICLN) offer exposure to clean energy and the underlying lithium and copper commodities. And for investors looking to add REITs to their investment mix, two examples include the Schwab US REIT ETF (SCHH) and the iShares Cohen & Steers REIT ETF (ICF).