Election 2024: Which stocks could thrive or dive post-polls?

With the US presidential election set to take place on 2 November, the contest between Vice President Kamala Harris and former President Donald Trump is tightening, pushing election fever to an all-time high. The result could have significant implications for various sectors of the economy, and investors are keeping a close eye on stocks that may be influenced by the outcome. 

From financial services, to energy and electric vehicles (EVs), stocks like Bank of America, Microsoft, Rivian, and Airbnb are poised for potential movement. But before we dive into these individual stocks, it's crucial to understand how the stock market has historically behaved during election cycles.

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Stock market behaviour during past elections

Historically, US elections have had a profound impact on the stock market, with patterns emerging over nearly a century. Since 1928, the S&P 500 has accurately predicted the outcome of 20 out of 24 US presidential elections. This predictive power comes from a trend where, if the market rises in the three months leading up to Election Day, the incumbent party tends to win. 

Conversely, a declining market usually signals a shift in power. For example, when the stock market was up during this critical period, the incumbent party kept the White House 12 out of 15 times. On the flip side, the party in power lost 8 out of the last 9 elections when the market was down in the months leading up to the vote.

Source: LP Financial

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Currently, the stock market has shown positive momentum since August, which, historically, could suggest a continuation of the current administration’s policies. However, with Joe Biden opting out of a second term and Kamala Harris leading the Democratic ticket, this election introduces unique uncertainties.

Renowned investor Stan Druckenmiller recently noted that the market seems to be pricing in a potential Trump victory, which could lead to significant sector-specific moves. Druckenmiller's observations reflect a larger sentiment that, while stock markets tend to react in the short term to political outcomes, long-term performance is more tied to broader economic trends like inflation, fiscal policies, and consumer confidence.

The immediate impact of elections is undeniable; however, it is crucial to note that historical data suggests market returns over the medium to long term are more significantly influenced by macroeconomic factors rather than election outcomes.

A divided government—where one party controls the presidency and the other controls Congress—has historically led to better stock market performance than single-party control. This is why investors need to focus not only on who wins the presidency but also on the makeup of Congress and how it might affect policy implementation.

Key sectors and stocks to watch

Finance services: Bank of America (BAC)

The finance sector is one of the key areas that could see significant impacts based on the election outcome. A Trump victory may signal a continuation of deregulation, potentially benefiting large financial institutions like Bank of America. Trump’s first term saw a rollback of several Dodd-Frank regulations, which allowed banks to expand operations and boost profits.

Another beneficiary of the looser business regulatory environment Trump is expected to foster is the financial sector, including banking and other financial institutions. Bankers are hoping that stiff rules being formulated by the Biden administration would be rolled back or even withdrawn, with one analyst expecting “less stringent capital standards.” This could create a more favourable environment for financial giants like Bank of America, enabling them to grow and take on more risk.

However, even under a Harris presidency, the finance sector is likely to remain strong, particularly with growing bipartisan concerns around inflation, interest rates, and consumer lending. Bank of America, as one of the largest banks in the US, is well-positioned to benefit from either administration, making it a stock that investors should closely monitor as the election approaches.

Technology and cybersecurity: Microsoft (MSFT)

Microsoft is another company that stands to perform well regardless of the election outcome. Both Harris and the GOP have emphasised the importance of cybersecurity, with Harris being a long-time advocate for strengthening IT infrastructure against cyber threats. The GOP’s platform also includes a focus on cybersecurity, aligning with the growing concern over cyber defence.

Microsoft, a leader in both AI and cybersecurity, is positioned to benefit from this bipartisan focus. As the second-largest cloud service provider, Microsoft has integrated AI into its suite of software products and also offers comprehensive cybersecurity solutions. Given the importance of AI in both business and government sectors, Microsoft’s growth prospects remain strong, regardless of which party takes the White House.

EV stocks: Rivian Automotive (RIVN) and Tesla (TSLA)

The electric vehicle (EV) sector is a major focus in this election, particularly under Harris, who has continued Biden’s support for pro-EV policies. Harris has championed federal incentives such as the $7,500 EV tax credit, along with billions of dollars in grants to build a national charging network. These policies directly benefit companies like Rivian Automotive, which produces the R1T pickup, R1S SUV, and delivery vans for Amazon, as well as Tesla, whose leadership in the EV space positions it to capitalise on these incentives.

Despite Elon Musk backing Trump, a Kamala Harris win could actually boost Tesla, thanks to her emphasis on renewable energy and EV expansion. In fact, the Harris campaign is scheduled to meet with Tesla owners on a Zoom call on 2 November, highlighting her alignment with pro-EV policies.

Rivian has also garnered positive reviews from analysts, with a consensus “Buy” rating and optimism about its future growth. Rivian's improvements in production and strategic partnerships, such as Volkswagen’s $5 billion investment, further solidify its position in the EV market. Whether Harris continues Biden’s policies or Trump shifts the market to a more traditional energy focus, both Rivian and Tesla remain strong stocks to watch.

Travel and Tourism: Airbnb (ABNB)

Airbnb is another stock to keep an eye on as the election approaches. Some analysts predict that a Trump victory could lead to increased consumer confidence and travel, which would benefit Airbnb. The company has already demonstrated profitability and resilience in the travel sector and could see further growth as travel demand picks up post-pandemic.

Regardless of who wins the election, Airbnb’s operational efficiency and positive financial performance make it a solid option for investors looking to capitalise on the recovery of the travel and tourism sector.

Expert opinions and the road ahead

As the US election draws near, market experts emphasise that while political outcomes can influence specific sectors, long-term stock performance is primarily driven by broader economic trends such as inflation, interest rates, and fiscal policies. Investors should keep a close eye on these macroeconomic factors while monitoring individual stocks that could be impacted by the election.

For those looking to navigate the post-election market, the stocks discussed— Bank of America, Microsoft, Rivian, and Airbnb—offer strong potential for growth. Whether Harris or Trump wins, these companies are poised to benefit from ongoing trends in defence, technology, energy, and consumer travel.

Trade election stocks on Deriv MT5

If you're looking to set up trading positions ahead of the US elections, Deriv MT5 offers a wide range of assets, including Bank of America, Microsoft, Rivian, Tesla, and Airbnb. With Deriv MT5, you can explore these key stocks and position your portfolio for success, no matter who wins the presidency. 

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