Benzinga - by Piero Cingari, Benzinga Staff Writer.
The outcome of the upcoming U.S. presidential election could significantly impact the U.S. dollar and the performance of domestic-facing versus internationally-exposed U.S. firms, Goldman Sachs analyst David J. Kostin stated in a note released Monday.
Election Impact on Markets Investors are closely watching Thursday’s first presidential debate, which is expected to influence betting-based predictions of the election outcomes. According to betting website Polymarket, there is a 57.5% likelihood of a Trump win and a 34.5% chance of a Biden win (FiveThirtyEight currently shows a dead heat between the two candidates).
Additionally, there is a 73% chance of Republicans winning the Senate and a 54% chance of Democrats retaining control of the House. The probability of a Republican sweep stands at 42%, nearly double the 22% odds of a Democratic sweep.
Historical Performance Trends Goldman Sachs highlighted historical trends where U.S. stocks with a focus on domestic sales outperformed those with greater international exposure by 1 percentage point (pp) the day after Trump’s election and by 4 pp in the following month. However, these domestically-focused stocks underperformed by 9 pp during the 12 months after the election.
Among the largest constituents of Goldman Sachs’ Domestic Sales Basket are CVS Health Corp. (NYSE:CVS), Wells Fargo & Company (NYSE:WFC), T-Mobile US Inc. (NASDAQ:TMUS), Verizon Communications Inc. (NYSE:VZ), Lowe’s Companies Inc. (NYSE:LOW), Intuit Inc. (NASDAQ:INTU), and Union Pacific Corp. (NYSE:UNP).
The largest constituents in Goldman Sachs’ International Sales Basket include: Meta Platforms Inc. (NASDAQ:META), Broadcom Inc. (NASDAQ:AVGO), Visa Inc. (NYSE:V), Mastercard Inc. (NYSE:MA), QUALCOMM Inc. (NASDAQ:QCOM), Netflix Inc. (NASDAQ:NFLX), McDonald’s Corp. (NYSE:MCD), Philip Morris Intl (NYSE:PM), Applied Materials Inc. (NASDAQ:AMAT), and Intel Corp. (NASDAQ:INTC).
Impact of Potential Tariff Policies Kostin noted that a Trump victory would likely lead to a stronger U.S. dollar, irrespective of a Republican sweep or a divided government. It’s worth noting that the dollar hit a 34-year high under Biden and that Trump is reportedly exploring ways to devalue the dollar should he win.
Trump has proposed several potential tariff policies, including a 10% across-the-board tariff on imports and a 60% tariff on imports from China. Although there is considerable uncertainty regarding the size and scope of these tariffs, increases appear likely in the event of a Trump victory.
Such tariffs could increase consumer prices, and potentially boost government revenues, though the impact on economic growth remains uncertain.
“Tariffs would create a headwind to the performance of stocks with high international revenue exposure due to the risk of retaliatory tariffs and heightened geopolitical tensions,” Kostin stated.
In 2018, when the U.S. announced tariffs and other trade barriers against China, Goldman Sachs’ Domestic Sales basket outperformed the International Sales basket by 9 pp (-2% vs. -11%) and the China Sales Exposure basket by 15 pp (-2% vs. -17%).
Companies with significant international revenues and those dependent on international suppliers would face substantial headwinds from tariffs. The median tech hardware stock has the highest exposure to suppliers from Greater China, while the median broadline retail stock has the greatest exposure to domestic suppliers.
Since last fall, an equal-weighted portfolio of stocks most exposed to suppliers from Greater China (excluding tech) has underperformed a similarly constructed portfolio of stocks most exposed to U.S. suppliers by 18%. The relative performance of these two groups has generally moved in line with prediction market odds of a Trump presidency.
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