Skip to main content

U.S. President Donald Trump speaks at a campaign rally at Atlantic Aviation on Sept. 22 in Moon Township, Pennsylvania.Jeff Swensen/Getty Images

Some U.S. stocks could face more volatility next week as President Donald Trump and rival Joe Biden face off in their first debate ahead of a November election that betting services currently view as almost a coin flip.

A strong performance in Tuesday’s debate by Mr. Biden, who currently has a modest lead in betting odds and polls, might boost stocks related to global trade and renewable energy, while a perceived debate victory by Mr. Trump could benefit fossil fuel and defence companies.

The first of three scheduled debates comes at a fraught moment on Wall Street.

The S&P 500 has tumbled 10 per cent from record highs in recent weeks as investors worry about a prolonged recovery from the coronavirus and uncertainty related to the Nov. 3 vote, including the possibility of a delay in announcing a winner.

If one candidate emerges stronger on Tuesday, “the debate could be an individual stock and sector play,” said Jack Ablin, chief investment officer at Cresset Wealth Advisors.

“For example, I think life under Biden would be a lot simpler for Apple than life under Trump,” Mr. Ablin said, referring to Mr. Trump’s trade conflict with China.

Individual stocks and other assets have been susceptible to market moves as a result of debates, even as broader markets have generally shrugged them off.

The Sept. 26, 2016, debate between Mr. Trump and Hillary Clinton, for example, sparked a 2-per-cent surge in the Mexican peso, as well as moves in oil, gold and Treasuries, according to a University of Michigan and Dartmouth College study.

Many investors view Mr. Biden as more likely to raise taxes, and see a second term for Mr. Trump, who favours deregulation, as better for the overall stock market. At the same time, a Trump win could spark concerns over ramped up tensions between Washington and Beijing.

With expectations of a delayed vote count, the options market shows investors are bracing for volatility in November and December. Mr. Trump declined on Wednesday to commit to a peaceful transfer of power if he loses, and said he expected the election battle to end up before the Supreme Court.

Adding to political uncertainty, betting websites are offering odds giving Mr. Biden a 53-per-cent chance of beating Mr. Trump, down from as much as 61 per cent in early August, according to RealClearPolitics.

A Biden win could boost the S&P 500 by about 1 per cent the following day, while a Trump re-election would push the index down about 4 per cent, according to an analysis by Cornerstone Macro based on a statistical comparison of recent asset prices and election betting odds.

“A possible interpretation of this result is that markets have increasingly priced in a Biden win and view the alternative as posing some risks, possibly stemming from potential escalating trade tensions or similar factors,” Cornerstone Macro wrote.

Gullane Capital Partners LLC, a hedge fund in Memphis, Tenn., is focusing on each presidential candidate’s likely effect on specific stocks it owns, rather than what each candidate might mean for Wall Street as a whole, managing partner Trip Miller said.

“Biden is good for some of our businesses, like solar, and Trump is better for some of our other businesses that benefit from lighter regulation,” Mr. Miller said.

UBS in a report last week predicted that a second term for Mr. Trump would have little effect on health care. On the other hand, a Biden victory would lead to only modest changes, rather than a major overhaul of health insurance, even if Democrats took control of the Senate.

“We believe that the rhetoric on changes to health care policy exceeds the reality of what can be accomplished,” UBS analysts wrote.

Stocks to watch following presidential debates

Potential winners from a strong Biden performance:

  • Tyler Technologies (TYL-N, government technology)
  • HMS Holdings (HMSY-Q, health care innovation)
  • Molina Healthcare (MOH-N, Medicare/Medicaid)
  • Brookfield Renewable Partners (BEP-N, clean energy)
  • AECOM (ACM-N, infrastructure)
  • Kansas City Southern (KSU-N, global trade)

Potential winners from a strong Trump performance:

  • Occidental Petroleum (OXY-N, U.S. energy)
  • Enterprise Products Partners (EPD-N, U.S. energy)
  • Raytheon (RTX-N, defence)
  • Lockheed Martin (LMT-N, defence)
  • Turning Point Brands (TPB-N, tobacco)
  • Enova International (ENVA-N, financial deregulation)

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Report an error

Tickers mentioned in this story