Global Weekly Commentary: U.S. election through a sectoral lens
Sectors in spotlight
We zoom in on the implications that the U.S. election may have on three key sectors: energy, technology and healthcare.
COVID in the White House
U.S. President Donald Trump has tested positive for COVID-19, adding to near-term election uncertainties. U.S. fiscal package negotiations continued.
Markets will focus on services purchasing managers’ index (PMI) data from key economies to gauge the pace of the economic recovery.
The potential outcomes of the November U.S. election could have starkly different policy ramifications, as we argued last week. What will this mean for equity markets? We believe simplistic narratives about the overall market direction are best avoided – and see the biggest election-related implications playing out within asset classes and sectors. We zero in on energy, tech and healthcare.
Chart of the week
U.S. electricity generation by major energy sources, 1950-2019
Sources: BlackRock Investment Institute, with data from the U.S. Energy Information Administration, October 2020. Notes: The electricity generation is from utility-scale facilities. Data for 2019 are preliminary.
A win by former Vice President Joe Biden – along with Democrats taking control of the Senate – could help accelerate a shift toward sustainability that is already under way. His climate policy would focus on four areas: electric power, transport, buildings and research and development (R&D) spending. The share of electricity generated by renewable sources has grown steadily in the U.S. – from 10% in 2010 to 17% in 2019 – according to the U.S. Energy Information Administration. See the chart above. A Democratic sweep could accelerate the decarbonization of the power sector, by extending and expanding tax credits for renewable power sources and other zero-carbon industrial sources such as carbon sequestration. The Biden campaign has also proposed significant investment to reduce emissions in the transport sector, and to retrofit commercial and municipal buildings to increase their energy efficiency. Industries such as solar may already have largely priced in the transition to clean energy, yet we see other opportunities, such as energy-efficient technologies and offshore wind power.
How much of Biden’s climate policy proposal would become reality if he won the election? A Democratic sweep would likely lead to a large boost to public investment in clean energy. Fiscal spending would be significantly more constrained under a Biden win with divided government. Much could still happen on the regulatory front, such as tightening rules on oil and gas exploration, production and transmission. A crackdown on drilling and pipeline permits could constrain U.S. shale supply and push oil prices up, especially as demand recovers post-COVID. Yet any spike in oil prices may not be sustained given the prospect of an accelerating shift to clean energy in the transport sector. We see opportunities in private markets across renewables, digital infrastructure and transport regardless of the election result, given the structural shift to sustainability.
The tech sector – which has led the market in 2020 – is also in the spotlight. Concerns around data privacy and market power make tech regulation an area of growing bipartisan concern. Yet a Biden administration would likely bring more strenuous anti-trust reviews, including around issues such as wages and platform power. Tax reforms in a Democratic sweep scenario could also weigh in particular on global tech giants. We view the regulatory risks faced by mega-cap tech companies as manageable overall, as many have already adjusted to tougher data privacy rules in Europe. We see potential for leadership within the sector to broaden to a wider set of beneficiaries across different themes including 5G connectivity. Software and semiconductors could lead the charge, as they face fewer regulatory risks and enjoy long-term growth trends. Some tech companies could also benefit from the clean energy transition and a shift toward greater energy efficiency.
We see healthcare policy as relatively stable in the first year of a potential Biden administration – as opposed to early in the first terms of President Barack Obama and President Donald Trump, when it was a principal focus of the policy discussion. COVID response, economic recovery and climate-related initiatives would likely take priority in 2021, in our view. A risk to this view: The Supreme Court is scheduled to hear a case on the Affordable Care Act a week after the election, potentially pushing the healthcare debate back to the front burner. Measures to curb drug price increases are a potential focus – regardless of the election result. Yet we would expect only modest action against the backdrop of the pandemic, as drug makers are playing an important role in vaccine development and COVID response. Overall we favor medical devices, life sciences and diagnostics companies, as well as some diversified large-cap pharmaceuticals in Europe.
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