Tuesday night’s rowdy presidential debate ended with President Donald Trump on full offensive and former Vice President Joe Biden largely deflecting the attacks. Centrist publications called the event a tie, while partisans claimed victory for their side.
Amidst the 90-minute chaos, however, some policies started to emerge. As investors prepare themselves for a tumultuous election, what are the critical investor takeaways from the first presidential debate?
Takeaways from the First Presidential Debate: Trump Punts on Healthcare
From the very start, Biden turned the conversation to the Affordable Care Act (ACA), questioning what plans Trump had to replace the individual mandate.
The Republican president largely sidestepped the question. “Drug prices will be coming down 80 or 90%,” Mr. Trump responded. “Insulin, it was destroying families, destroying people, the cost. I’m getting it for so cheap it’s like water, you want to know the truth. So cheap.”
His response echoes what many Republicans and Democrats had long suspected: with the individual mandate now repealed, the Republican president has little left to dismantle. And he doesn’t seem keen on adding new regulations either.
The lack of clarity should alarm investors on both sides — clear regulations have usually benefited both insurance companies and consumers. The Obama/McCain debates in 2008, for instance, initially unnerved health insurance companies with talks of massive reform. But the ACA later proved a windfall as millions of uninsured joined as new customers.
While insurance companies are still profiting without the individual mandate, an adverse ruling next month by the Supreme Court could send the industry into a tailspin.
2. Trump Needs Operation Warp Speed to Succeed
While the president briefly pulled out a mask onstage, his plans for tackling the coronavirus pandemic rests on hopes of a vaccine before Nov. 1. And he’s putting pressure on drug makers.
“I’ve spoken to Pfizer, I’ve spoken to all of the people that you have to speak to, Moderna, Johnson & Johnson, and others,” the president said during the debate. “They can go faster than that by a lot. … [Dr. Redfield ] said it’s a possibility that we’ll have the answer before November 1st.”
A vaccine could quickly boost Trump’s standing among independents, proving that he’s had the answer all along with Operation Warp Speed.
But there’s another reason for his apparent fear: China.
Chinese drugmakers have been administering vaccines that have not completed phase 3 trials, giving unproven doses to thousands of employees at state-owned companies.
As Tuesday’s presidential debate highlighted, there’s a growing concern within the White House that U.S.-developed coronavirus vaccine won’t come soon enough. Investors should expect heightened risk at the four major Covid-19 developers if these trials get rushed. And if a vaccine gets approved and later proves ineffective — or worse, harmful — then expect drug maker stocks to plummet as trust in the medical community evaporates.
3. Biden Denies Leftist Label
In response to Trump’s claims of the Democrat’s “socialist medicine and socialist healthcare” plans, Biden rebuffed, “the party is me. Right now, I am the Democratic Party.”
Throughout the campaign, the Democratic hopeful has continued to distance himself from the party’s left flank, all while never entirely denouncing them. The debate marked Biden’s most clear stance yet.
From an investor’s point of view, Biden’s centrist campaign brings good news to general investors. There’s a diminishing risk that he will have to satisfy the Democratic Party’s leftmost flank with improbable promises, such as decarbonizing the energy sector by 2035.
Still, a Democrat-led government will also likely become less friendly towards the giant tech companies.
Under the current administration, the Department of Justice has mostly focused antitrust cases on national security concerns. Trump’s office has even stepped in to influence competition cases where it’s not a party. The administration’s inattention to homegrown players has allowed companies like Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and other tech giants to pretty much do as they pleased. Except for a $5 billion fine to Facebook (NASDAQ:FB) in 2019, the administration has made little effort to penalize companies for anti-competitive or anti-privacy behavior.
Biden’s centrist platform could change that. If elected, Biden will likely follow the E.U.’s lead in clamping down data privacy and antitrust issues. Large tech companies will suffer while smaller upstarts could gain.
4. Biden Plans to Raise Corporate Taxes to 28%
“I’m going to eliminate a significant number of the tax [cuts],” Biden said, “I’m going to make the corporate tax 28%. It shouldn’t be 21%.”
The seemingly small 7% change could significantly affect companies that earn most of their revenues in the United States. That’s because, strictly speaking, a 7% decrease in net income will also decrease long-term share prices by 7%.
Investors, however, shouldn’t run for the hills. Many of the Trump Tax Cuts already expire between 2025 and 2027; these “sunset” clauses were added in for the Act to comply with budgetary constraints. The corporate tax was one of the few significant permanent changes, and the low rate was already quite contentious. If Biden hadn’t increased the tax to work in-line with other OECD countries, it’s likely another president would have. He’s just pushing the schedule earlier.
5. Trump: “I’m all for electric cars”
One of the stranger moments in the debate came towards the end when Biden challenged Trump on fuel economy standards.
“I have given big incentives for electric cars,” Trump responded.
Electric vehicle investors would immediately cry foul. In 2019, the Trump administration removed the $7,500 tax credit for electric vehicles, sending sales of non-Tesla (NASDAQ:TSLA) E.V.s spiraling. Sales of Chevy Bolts and other non-Tesla E.V.s have yet to recover.
So, what did Trump mean? He was likely referring to his promotion of Lordstown Motors, an electric pickup truck startup founded by former Workhorse (NASDAQ:WKHS) CEO Steve Burns. While not necessarily a tax incentive, his Lordstown promotion has reportedly helped earn the startup 40,000 preorders.
That makes both Trump and Biden supporters of the electric vehicle industry, even if the Republican president doesn’t fully support capping carbon emissions.
6. Fossil Fuel Companies Remain Touchy for Trump
When quizzed on climate change, Trump fully sidestepped the question of carbon emissions. Instead, he contorted himself, saying he supported “immaculate air, immaculate water… we’re planting a billion trees.”
It has been a tough several years for the fossil fuel industry. Shares in the Vanguard Energy Index Fund (NYSEARCA:VDE) are down over 50% since Trump assumed office, and 11 coal companies have filed for bankruptcy.
Much of the decline has been outside Trump’s hands — failed OPEC negotiations in March sent the price of crude tumbling to record lows. But some of the blame also lands squarely on the Trump administration’s relaxation of fracking regulations. As fracking on federal lands boomed, the price of Henry Hub natural gas plummeted. The average price for the index under former President Barack Obama stood at $4.33. Under Trump: $2.67. (Natural gas is harder to transport, so reflects U.S. supply/demand better than oil prices)
That means a win by Biden won’t necessarily hurt the fossil fuel industry as much as investors might think. By constraining supply, the Democratic hopeful could help existing players like Chevron (NYSE:CVX) and ExxonMobil (NYSE:XOM) while locking out smaller, less profitable players.
7. Biden Didn’t Stumble, Remains the Clear Favorite
So far, the 2020 election looks like Biden’s to lose. The former Vice President leads in virtually every poll by an average of 7 percentage points. It’s a massive lead in the age of partisan politics, but not an unbeatable one. And remember, Trump trailed Hillary Clinton in many polls four years ago.
And while Tuesday night’s presidential debate seemed chaotic, neither side managed to land a lasting blow on the other. And that’s good news for Biden.
Without a convincing win, Trump will struggle to gain the swing votes he needs before the election on Nov. 3. With voting already underway, it looks like an uphill battle for him.
If Biden wins, several industries will see significant changes. Several of my colleagues have put together lists of companies that could benefit from a Biden win:
- 20 Election Stocks to Buy if Joe Biden Wins in 2020
- What Happens if Biden Wins
- My Thoughts on the Election and the Markets
On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.