Fund in this article
Shares in this article
ETFs in this article
indices in this article
by A. Hohenadl and K. Schachinger, Euro am Sonntag
Hat Donald Trump gambled away? The “China virus”, as he likes to call it, underestimated? Very obviously. Because no country in the world is as badly affected by SARS-CoV-2 as the USA. More than 4.8 million people are infected and nearly 60,000 new cases are added every day. The number of deaths exceeds 150,000.
At the end of March, the US President announced that if the number of coronavirus deaths could be kept below or around 100,000, “we will all have done a very good job”. British historian and author Niall Ferguson wrote at the time that Trump was making the biggest bet of his career. The mission is the life of 100,000 Americans. According to Ferguson, the number is roughly double the annual flu deaths in the United States.
Ferguson argued that the corona pandemic would not develop into a political catastrophe for Trump up to this number. The US president was already thinking about his chances of re-election and did not want to stall the economy. He bet that the virus would not spread as badly as it did in some southern European countries. The polls from then signaled support.
In the meantime, the pandemic has turned into a political catastrophe for Trump. Because not only the large American coastal states of New York and California, where traditional democratic elections are held, are severely affected by the corona virus. The infection rate has increasingly shifted to the smaller, republican-electing inland states. As a result, doubts about the president are growing in Trump’s regular electorate and his approval ratings are falling.
Meanwhile, there are increasing voices calling for more consistent action against the pandemic. Neel Kashkari, Federal Reserve President of Minneapolis, considers four to six weeks of “really tough” lockdown to be the right means in the fight against the virus. The economy can only achieve a strong recovery if the infections are under control.
Despite the heavy burden that remains on the US economy, the country’s stock exchanges are still in recovery mode. In fact, numerous companies have recently been able to exceed expectations, which had previously been drastically lowered. Technology stocks in particular are driving the prices on Wall Street to ever new heights, which is particularly causing new records for the Nasdaq tech index.
In a way, stock markets and the real economy seem to have decoupled. Because the consequences of the Corona crisis cannot be denied: In the second quarter, the gross domestic product of the USA collapsed by 9.5 percent compared to the same quarter of the previous year. That is the biggest decline in post-war history. Private consumption fell by 10.7 percent year-on-year.
In the last weeks of July, the number of initial jobless claims also increased again. It is currently the market’s preferred measure of the state of the economy. “This indicates more and more that the economy has swung on a flatter path towards a final recovery,” says Christian Scherrmann, USA economist at the fund company DWS. And: There is currently a grueling game between Republicans and Democrats over the continuation of the Corona aid package and further support services for the unemployed.
Not good news for Trump’s re-election. Postwar US history teaches that in all cases where the economy was in recession or threatened to slip into a possible second presidential term, the incumbent lost the race. A thriving stock market is also critical to the re-election of a president. Because Americans have traditionally been heavily invested in stocks to save money for retirement.
But even high prices on the stock markets fueled by cheap central bank money are currently not helping Trump out of the popularity hole. In the current polls, the Democratic challenger Joe Biden leads by a clear margin. The pollsters give him good chances, but expect a rather narrow victory. Caution is advised, as in 2016 the Democratic candidate Hillary Clinton was ahead in most polls. Then, surprisingly, Trump won. Things look better for Biden in November as his popularity ratings are higher than Clinton’s 2016.
Democrats with better exchanges
For some time now, analysts have been concerned with a possible election victory and the consequences for the economy and the stock market. They also want to question old beliefs. It is anchored in the mindset of many Americans that a Republican government is better for businesses and investors than a Democratic one. And with the tax cuts after he took office, Donald Trump has indeed done a lot to consolidate this idea. But the historical truth is different.
According to calculations by the “New York Times”, the US stock market has performed much better under Democratic presidents since 1900. During their tenure, the Dow Jones Industrial Average grew by 6.7 percent annually. Under Republican presidents it was only 3.5 percent.
The three incumbents with the best stock market returns of their time include two Democrats: Bill Clinton (15.9 percent p. A.) And Barack Obama (12.1 percent p. A.).
Whether it will be enough for Joe Biden on November 3rd will remain exciting until the end. The only thing that is clear so far is that the Democrat’s election manifesto is very different from that of Trump. Biden wants to achieve a more even tax burden in the US. Higher corporate and capital gains taxes would be expected under his administration.
His idea is to increase corporate taxes from 21 to 28 percent. According to analysts at Bank of America, that would reduce earnings per share by a “mid-single-digit percentage”. In return, Biden is planning tax breaks for the lower and middle income brackets, which experts say could translate into higher consumer spending.
Likewise, stricter environmental protection regulations can be expected from President Biden, which would pose greater challenges, especially for companies with high CO2 emissions. Clean energy is clearly at the center of Biden’s $ 2 trillion plan to revitalize the economy. The 77-year-old promised that the country would take “irreversible steps” to reduce emissions if he were president. He wants to rejoin the Paris Climate Agreement and reduce US CO2 emissions to zero by 2050.
Donald Trump’s position could not be more contradicting. He is concerned with the dominance of the USA in the energy market and the strengthening of companies in the oil and gas production. According to the New York Times, the Trump administration has withdrawn almost 70 environmental protection regulations and plans to do so in 30 more.
The 73-year-old also wants as little regulation as possible from banks and financial service providers. In recent years he has relaxed many regulations from the Obama era that served consumer protection. A President Biden would probably turn the clock back a little in this area as well.
In addition to fighting climate change, the democratic candidate is also focusing on expanding access to state-funded health care. Biden wants to take 775 billion dollars in hand over the next four years.
And: He is striving for a much stronger role for the federal government when it comes to combating the corona pandemic. Trump had passed responsibility for this to the individual states very early on, some of which reacted strictly, and some not at all. Now the president’s hopes rest on a vaccine that is available as quickly as possible.
If Biden wins the election, the health sector could be among the beneficiaries, as could companies in the clean energy sector. The editors have compiled specific investments, also in the event of Trump’s re-election, on the following two pages.
The future of the “Big Five”
The most important aspect for the markets, however, revolves around the question: How does a democratic government affect the technology sector? Its companies – especially the “Big Five”, Alphabet, Amazon, Apple, Facebook and Microsoft – were decisive for the development of the stock market in recent years. “On average, the ‘Big Five’ have achieved an increase of almost 30 percent over five years – mind you every year,” says fund manager Klaus Kaldemorgen from DWS.
The IT giants are also dominantly represented in global stock indices. The MSCI All Country World Index comprises around 3,000 stocks. The “Big Five” are right at the front in terms of weighting and together have a share of 11.3 percent. “Apple and Microsoft combined come to about the same weight as Japan,” said Kaldemorgen. “Amazon alone has a share that is on par with Germany.”
In a second term in office of Trump, the corporations could probably expand their market power even further. Because so far the Republican government has not been willing to take part in the discussions about a global digital tax. And then the President himself is taking care of a spectacular business deal. He threatens to “shut down” the popular TikTok video platform in the USA if the Chinese parent company Bytedance does not sell it by September 15th.
With Microsoft there is already a prospective buyer who is in negotiations with the Chinese. Bytedance has been trying for some time to separate its international platform from the Chinese version. Trump, in turn, can demonstrate to his voters that he is taking a tough stance on China.
But what if Biden wins? Is there a threat of a “techlash” – tighter controls and possibly a break-up of the big tech companies? Julien Howard, investment strategist at GAM Investments, is calm about it. Breaking up tech companies could even be beneficial for investors, he says. “Separate stock quotes from companies that make up Alphabet could add up to over 30 percent higher than the current corporate structure.”
Just one example of why Howard does not fear the consequences for the US economy in a democratic election victory. His ideal scenario would be a Democratic president with a Republican-dominated Senate: This offers a situation “in which the low tax rates remain, but there are no more tweets or trade and diplomatic drama”.
R.US President Donald Trump regularly denigrates the “New York Times” as “the failing Times”, the failed “Times”. Should Trump stay in office for another four years, this should boost the renowned newspaper’s economic success even more.
On the floor, the New York Times Company’s stock market value has quadrupled since Trump moved into the White House in 2016. At the end of May, more than five million readers worldwide had subscribed to the “Times” online. According to the publisher, 4.4 million of the 5.3 million subscriptions were digital at the end of 2019. Never before had so many subscribed to the Times, digitally and as a newspaper, writes the publisher in its annual report. Trump’s numerous templates for critical reporting are spurring business.
Bloomberg Intelligence believes the company will double its digital subscriptions to ten million by 2025. According to analysts, earnings in 2020 should shrink by a quarter compared to the previous year due to the high investments, but double-digit growth in the following two years should quickly compensate for this dent.
Bank of America, one of the largest US financial institutions and one of the largest asset managers in the world since the takeover of rival Merrill Lynch after the global financial crisis, benefits from the easing of strict regulations decreed by Trump. Currently, however, low interest rates and the pandemic are holding the financial giant back. Around 40 percent of the business is supplied by private customers, and another 20 percent by corporate customers.
Buffett raises at Bank of America
The trumps of the banking giant are the strong online banking with more than 37 million customers and the asset management, which contributes a fifth to the business. Investor legend Warren Buffett recently increased his stake as the largest shareholder through his private equity firm Berkshire Hathaway.
America’s largest oil and gas company Exxon Mobil could use Trump’s support from the White House for another four years. The second quarter, with a loss of $ 1.1 billion, was the weakest in the history of the Irving, Texas-based oil giant. An improvement in prospects for the entire industry is not in sight for the time being due to the global economic downturn.
In the defense industry, whose businesses fit well with Trump’s “America First” doctrine, Northrop Grumman is a favorite with investors. The Falls Church, Virginia corporation plays a leading role in modernizing America’s nuclear weapons. In addition, the participation in the construction of Lockheed Martin’s F35 fighter jet and the space program offer great potential for long-term value appreciation.
Trump is unlikely to forget the personal and financial support of billionaire Bernie Marcus, co-founder of America’s home improvement giant Home Depot, during another term in office. But even without help from the White House, the Atlanta, Georgia-based company’s business is a leading indicator of America’s economic recovery.
Broadly diversified investments
In the event of Joe Biden’s election victory, analysts at the Royal Bank of Canada believe there are some sectors that would be sensitive. In particular, Biden’s demand for a minimum wage frightens business leaders. If Trump were re-elected, for example, the consumer discretionary sectors and industrial service providers would have a clear advantage. Because Trump is not expected to raise corporate taxes, oppose share buybacks or strengthen the unions.
Consumer discretionary is understood to mean goods that cannot be assigned to basic needs. They are bought when the economy is up and consumers are optimistic. With the ETF, investors are betting on this sector. Amazon accounts for around 34 percent of the ETF and Home Depot for almost ten percent.
The industrial service providers from the S&P 500 are gathered in this listed index fund. The share of the transport company Union Pacific Corporation has the highest weighting. The Honeywell conglomerate and the defense company Lockheed Martin are also represented in the top 10.
D.he Wall Street has now come to terms with a change of power in Washington. Joe Biden, the US Democratic candidate, is now in favor of US President Donald Trump. “The market has grown used to Biden’s chances of winning,” said Lori Calvasina, chief equity markets strategist for the Royal Bank of Canada (RBC). The courses have been increasing since May. And that despite the fact that Biden, as US President, wants to reverse his predecessor’s tax cuts and make the share buybacks popular with investors more difficult.
Companies whose business would be boosted by Biden’s billion-dollar Clean Energy Plan for the climate-friendly restructuring of the economy would benefit significantly from the move of the Democrat to the Oval Office.
Albemarle is one of them. The specialty chemicals company based in Charlotte, North Carolina, generates 40 percent of its three billion dollar sales with lithium, the battery raw material for hybrid and electric drives. The catalytic converter division also supplies technologies for low-emission fuels.
Climate change as a motor for jobs
Joe Biden wants to reintegrate the US into the commitments of the Paris Climate Agreement. Far more electric and hybrid cars need to be on America’s roads to improve emissions.
Good for Tesla. As the global auto industry overcomes its worst crisis, excited Elon Musk, the founder and boss of the e-car pioneer, has a robust business and is planning the new plant in China and future production near Berlin.
For Trump, climate change is a hoax, says challenger Biden. The Democrat sees this global change as an “opportunity for new jobs” and includes the oil and gas sector. By tidying up, cleaning and disposing of carelessly abandoned production sites, Biden wants to create 250,000 jobs there.
With the processing and recycling of raw materials, especially from the extraction of oil and gas, Waste Connection generates a significant share of the turnover estimated at 5.4 billion dollars for 2020. Based in Ontario, Canada, the recycling group generates the highest margins in the industry according to Bloomberg Intelligence. RBC experts top the list of winners in a change of power.
NextEra Energy is also on this list. Florida’s largest utility is also America’s largest provider of wind and solar power. A change of power in the White House should spur NextEnergy with an estimated turnover of more than 20 billion dollars for 2020. US power producers are replacing coal with gas to meet emissions targets. The Group is also benefiting from this trend. Analysts believe the utility in the industry will achieve the highest growth in the long term.
If the US economy recovers faster than expected – also due to the containment of the pandemic with new leadership in Washington – the world’s largest supermarket operator Walmart with 5,000 US branches would also benefit early from more consumption.
Broadly diversified investments
For presidential candidate Joe Biden, the corona pandemic has created a favorable basis for linking a recovery plan for the US economy with green goals such as a clean energy supply. Biden’s idea is that there will be no more CO2 emissions there by 2035. This ambitious plan should give the entire sector a boost, which is why a broad entry point is an option. Just like with the subject of health, where Biden wants to expand the state supply. Health care providers should benefit.
With this ETF, investors can count on the performance of the S & P Global Clean Energy index. It contains the shares of the 30 largest companies in this sector. The focus is on utility stocks, followed by IT stocks. Almost 40 percent of the companies are based in the USA.
The actively managed fund invests in the health sector. However, the focus is not on pharmaceutical or biotech stocks, but on diagnostic laboratories or manufacturers of accounting software. This results in a fast-growing, not overly volatile mix. A good half of the fund consists of US stocks.
Even with sales of 143 billion dollars, Microsoft is expected to make double-digit increases every year. With the focus on the cloud, the software giant opens up a lot of potential in the lucrative corporate customer business through the worldwide distribution of Windows software. Around 137 billion dollars in cash provide security. Analysts see Microsoft as the ideal buyer of TikTok. Financially strong and not as dominant online as Alphabet or Facebook. Promising.
The restrictions caused by the lockdowns and the home office boom are spurring the business of the world’s largest online retailer and cloud leader. Worldwide, companies invested 30 percent more in cloud services in the second quarter, even if the growth of the subsidiary AWS was somewhat disappointing. In online trading, the technology giant’s revenues increased by 48 percent to 45.9 billion in the second quarter. The stock is very expensive, but the momentum is positive.
Regardless of whether Trump or Biden wins the election, investors should always be correctly positioned with this growth-focused fund. Two thirds of the portfolio is invested in companies from the information technology and healthcare sectors. The online mail order company Amazon, but also the manufacturer of e-commerce software Shopify and the video conference service provider Zoom, have great weight. The fund achieved an increase of more than 630 percent over the past ten years.
More news about Amazon
Image sources: razihusin / Shutterstock.com, Andrew Olscher / Shutterstock.com, Finanz Verlag, Finanz Verlag