U.S. Presidential Election Insights: Key Stocks to Watch and Avoid

In this article, we explore how the U.S. presidential election could influence the Australian market across key sectors, depending on whether Republican candidate Trump or Democratic candidate Harris wins. A Republican victory under Trump could support traditional energy and reduce regulations, potentially benefiting Australian companies linked to oil and gas. Conversely, a Democratic win with Harris in office might favour renewable energy and technological innovation, supporting Australian firms focused on sustainability. The healthcare and defence sectors would also be affected: Harris and the Democrats may prioritise healthcare spending, potentially driving advancements in biotech and medical sectors, whereas Trump and the Republicans may pursue cost-cutting in public health. Similarly, Trump’s defence policies could increase global military spending, benefiting Australian defence contractors, while Harris might adopt a more measured approach. We will examine how these potential shifts in U.S. policy could create diverse opportunities for Australian stocks across energy, technology, healthcare, and defence. How Will the U.S. Election Outcomes Impact Australian Market Sectors? The upcoming U.S. election could bring notable shifts across several key sectors of the Australian market, particularly energy, technology, healthcare, and defence. Energy and technology stocks are highly sensitive to regulatory and policy changes from the U.S., as American energy policies, emissions standards, and tech regulations can significantly impact global market dynamics. A Republican win might usher in a more favourable stance toward traditional energy sources and reduced regulations, potentially lifting global oil and gas sectors. In contrast, a Democratic win could contribute to a bullish outlook for renewable energy and technology industries. For Australian energy and tech companies, these shifts could not only impact on stocks valuation but also operational strategies, as they align with global regulatory standards and supply chain needs. Energy and Technology: Regulatory Sensitivity and Global Impact The energy and technology sectors in Australia are likely to respond to shifts in U.S. policy following the 2024 presidential election. U.S. regulatory changes, whether favouring traditional energy or green technology, often create ripple effects worldwide, impacting Australian companies involved in oil, gas, renewable energy, and technology. A Republican win might lead to a more relaxed stance on fossil fuel regulation, potentially benefiting traditional energy companies across markets, including Australia. Conversely, a Democratic administration would likely prioritise clean energy and tech-driven sustainability initiatives, which could have a positive impact on renewable energy projects and innovation in Australian technology companies aligned with green initiatives. This alignment or divergence from U.S. policy could shift both investor sentiment and operational choices in Australia’s energy and tech sectors. Energy stocks on our radar: Horizon Oil Limited (ASX: HZN): HZN stands out as a potentially appealing investment due to its strong financial performance, undervaluation, high dividend yield, diverse operations, and resilience in the oil and gas sector. Yancoal Australia Ltd (ASX: YAL): YAL is seen as an attractive opportunity due to its high dividend yield, robust financial resilience, and significant undervaluation, positioning it well for potential gains in a recovering coal market. With a strong operational base and positive market outlook, Yancoal could benefit from stabilized coal prices and continued dividend strength. Healthcare: Shifts in Spending and Biotechnology Healthcare in Australia may also be influenced by the U.S. election outcome, as shifts in American healthcare policy often set trends impacting global pharmaceutical and biotech industries. If Democrats win, healthcare spending is expected to remain a high priority, potentially increasing investment in biotechnology and medical research. This could benefit Australian healthcare companies with ties to U.S. research or investment, spurring advancements in pharmaceuticals and health tech. On the other hand, a Republican administration may lean toward cost-cutting measures in healthcare, affecting companies focused on government contracts or large-scale public health projects. These policy trends can influence global market strategies, especially for Australian companies heavily involved in biotech partnerships and healthcare innovation. Healthcare stocks on our radar: Pro Medicus Ltd (ASX: PME): A leading provider of radiology software, Pro Medicus has secured several contracts with U.S. healthcare providers. The company reported a strong net profit of $82.8 million in FY24, benefiting from its high-margin business model and significant growth potential in the U.S. market. CSL Limited (ASX: CSL): A global biotechnology leader, CSL specializes in developing and delivering innovative therapies for serious medical conditions. Approximately 50% of its sales come from the immunoglobulin market, with a significant portion generated from the U.S. Defence: Contracting Opportunities and Global Military Spending The defence sector is another area where U.S. election results could impact Australian markets, particularly due to the U.S. influence on global military spending. A Republican administration typically emphasizes military and defence expenditures, which can increase contract opportunities for Australian defence companies collaborating with U.S. contractors. Australian firms involved in defence technology, production, and support services could see increased demand if U.S. spending rises, aligning with regional security priorities in the Indo-Pacific. In contrast, a Democratic-led U.S. may adopt a more cautious approach to defence spending, which could temper growth expectations in Australia’s defence industry. As Australian defence companies often rely on U.S.-linked projects, the election’s impact on military budgets and contracting can significantly drive performance trends in this sector. Stocks exposed to defence sector on our radar: Codan Ltd (ASX: CDA): Codan specializes in rugged electronics for military and commercial markets, with a strong reputation in defence applications due to its reliable products suited for challenging environments. The company expects sustained growth in its communications segment. DroneShield Ltd (ASX: DRO): DroneShield focuses on counter-drone technology and has strengthened its market position through significant contracts with U.S. government agencies. With a substantial year-over-year revenue increase, the company is well-positioned to benefit from the global demand for counter-drone solutions. Sectors to Avoid: Risks in Utilities, Consumer Discretionary, and Materials Regardless of the election outcome, we believe that certain sectors could face downside risk during this time of uncertainty. We observe that the Utilities sector has historically underperformed in election years, largely due to heavy regulation and sensitivity to interest rate. This trend has been evident in past elections, such as 2016 and 2020, where Utilities lagged behind more dynamic sectors such as Financials and Energy. Similarly, we anticipate that the Consumer Discretionary sector will experience volatility as political uncertainty affects consumer sentiment. With contrasting candidates in the 2024 election, households may adopt a wait-and-see approach to spending, which could adversely impact companies that rely heavily on discretionary expenditures. Furthermore, the Materials sector is particularly sensitive to global trade policies and tariffs, which could become even more complicated as election outcomes unfold. Increased tariffs or deteriorating trade relations with key partners may lead to higher costs and reduced demand for companies in this sector. Given these potential headwinds, we recommend exercising caution with Utilities, Consumer Discretionary, and Materials sectors during this election period, until the dust settles. Election Volatility Sets Stage for 2025 Market Rally Market sentiment around the U.S. election outcome, whether it results in a win for Trump or Harris, is likely to experience heightened volatility, potentially softening as market participants adjust to the anticipated shifts in policy. Nonetheless, we expect a gradual transition toward a risk-on environment that could catalyse a sustained rally into 2025. Election periods historically show muted market performance and increased fluctuations, often followed by recovery as uncertainties recede. The Federal Reserve’s anticipated rate cuts, expected by late 2024 or early 2025, could reinforce this shift, supporting risk appetite. As we look ahead, easing monetary policy and stabilising economic indicators may provide a favourable landscape for equities.