Without opining on the potential election outcome, our analysis indicates that the Multi- Industry sector on average appears best positioned to benefit under a Trump administration, particularly from signaling of lower, or at least not higher, corporate tax rates.
Given the uncertainty, we believe it is still too early to make any changes to EPS/ratings on these election scenarios. However, we do not expect the election outcome to significantly impact the duration of this current economic cycle. If anything, we think a Trump win could reinvigorate capex spending, especially with the elimination of the election uncertainty and expectations for a more “business-friendly” administration.
Corporate Income Tax Rate
Trump plans to lower the corporate income tax rate from the current 21% to potentially 20% or lower. This would represent a reduction from the existing rate, which was established by the Tax Cuts and Jobs Act of 2017. While the specifics of Trump’s plan have yet to be outlined, it is clear that former President Trump intends to continue policies of reducing corporate tax rates. We believe that lower corporate taxes could lead to more investment in the US, potentially incentivizing more reshoring across semiconductors and pharmaceuticals.
Energy
Trump’s plan for energy independence focuses on reversing the Biden administration’s policies and reinvigorating the fossil fuel industry. Trump intends to withdraw the US from the Paris Climate Accord and eliminate regulations that hinder domestic energy production. He aims to expedite approvals for energy infrastructure projects and expand the construction of power plants, pipelines, grids, ports, refineries, and shipping terminals. His policy would also emphasize utilizing America’s oil, gas, and coal resources.
Inflation Reduction Act
Trump could potentially roll back several components of the Inflation Reduction Act, including subsidies for clean energy and electric vehicles. For example, the $7,500 tax credits for electric vehicles are seen as particularly vulnerable and likely to be a top priority for elimination. Clean power tax credits, especially those for emissions-free power plants coming online after 2025, could also be rolled back. Other provisions that could face scrutiny include tax credits for EV charging infrastructure, fees on methane emissions, environmental justice grants, and tax credits for home energy efficiency upgrades. Trump could work with Republican lawmakers to alter the IRA as part of an effort to extend Trump-era tax cuts. Even without legislative changes, he could potentially slow or obstruct implementation of IRA programs through staffing decisions or executive actions. The extent of the changes would likely depend on the makeup of Congress and how aggressively Trump pursues this agenda.
Immigration Policy
We expect that a potentially stricter immigration policy could modestly incentivize investments at the margin into industrial automation. In the near term, the persistent challenges associated with labor availability, shortage of experienced trades such as electricians, and loss of productivity could be exacerbated by a stricter immigration policy under a second Trump presidency, especially in the construction and electrical industries. That said, we believe this could prompt more companies that had shied away from embracing some sort of automation capabilities in manufacturing, warehousing, distribution, and transport due to higher upfront costs to reconsider their stances.
Military and Defense Spending
Trump is pushing for a stronger US military and insists that our allies increase their own defense spending. Trump’s stance on defense spending emphasizes a robust and well-funded military to ensure national security and protect American power globally. Trump advocates for significant increases in the defense budget, focusing on modernizing the US armed forces, enhancing cybersecurity capabilities, and maintaining a technological edge over potential adversaries. He emphasizes the importance of being prepared to counter threats from nations such as China, Russia, and Iran. Additionally, Trump calls for increased pressure on NATO allies and other international partners to boost their own defense spending, arguing that these countries should share more of the financial burden of collective security.
Environmental Deregulation
Former President Trump’s approach to environmental regulation prioritizes deregulation. His stance includes rolling back stringent EPA rules to reduce the regulatory burden on companies. Trump advocates for a more flexible regulatory framework that allows for greater industrial activity and infrastructure development without the extensive compliance costs imposed by more rigorous standards. This includes scaling back regulations on water pollution controls and limiting the scope of federal oversight under the Clean Water Act.
Trade & China
Trump supports aggressive trade measures against China. One of Trump’s key focal points is on China, where he supports aggressive measures to address issues such as intellectual property theft, forced technology transfers, and trade imbalances. A potential trade war with China under Trump’s leadership could involve significant tariffs on Chinese imports, which might lead to retaliatory tariffs from China on US goods. This could disrupt global supply chains. Overall, restrictions on globalization and the movement of capital and goods between nations would produce a net loss for the large US multi-nationals.
AI & Datacenter Investment
Trump’s push to establish industry-led agencies and review “unnecessary and burdensome regulations” on AI could accelerate the rate of AI/datacenter investments, in our view. With J.D. Vance, who has called for looser regulations and supported open-source AI, being selected as Trump’s running mate, we expect that a Trump presidency could favor Big Tech and AI developers. While the exact impacts are uncertain, we believe an about-face from Biden’s sweeping AI executive order could further accelerate the pace of investments by AI developers and infrastructure providers (i.e., datacenter operators and datacenter OE companies), especially when it comes time for commercialization/monetization of AI programs.
