Impact of Upcoming U.S. Election on Consumer Stocks

Investing.com — In a note published Thursday, Bank of America analysts examined how the upcoming U.S. election might impact consumer stocks, focusing on potential shifts in fiscal, immigration, trade, and regulatory policies.

Each policy domain, subject to divergent stances between a Democratic or Republican administration, is poised to affect sectors differently based on companies’ exposure to domestic operations, international trade, and consumer demographics.

Fiscal Policy

Fiscal policy stands out as a key factor for consumer stocks. A Democratic sweep, led by Kamala Harris, could increase the corporate income tax rate to 28%, pressuring earnings, especially among domestically focused companies.

"Retailers with high domestic exposure," such as American Eagle Outfitters Inc (NYSE:AEO) and Kohl’s Corp (NYSE:KSS), are anticipated to face challenges, while Trump’s proposed reduction to a 15% tax rate could encourage reinvestment and shareholder returns, particularly benefiting retailers like Five Below Inc (NASDAQ:FIVE) and Ross Stores Inc (NASDAQ:ROST).

"Trump’s proposal to cut the corporate tax rate to 15% would likely result in greater investment in businesses and benefit retailers with high domestic exposure in the short term," BofA analysts, led by Sara Senatore, explained.

Immigration Policy

Immigration policy also has different implications. A lenient Democratic approach may increase the lower- and middle-income consumer bases, potentially benefiting off-price retailers like TJX Companies Inc (NYSE:TJX) and Burlington Stores Inc (NYSE:BURL).

In contrast, a restrictive Republican stance could pressure labor supply, particularly affecting the restaurant industry.

"Sharply tighter immigration policies would likely have a disproportionate effect on the restaurant industry, with its relatively large immigrant labor force," analysts noted. “Slower growth in the labor pool would translate into a tighter labor market and upward pressure on wages,” they added.

Trade Policy

On trade, a Republican administration could introduce broad tariffs on China, impacting industries with substantial import exposure. "Higher China tariffs would be the most negative" for companies heavily reliant on Chinese imports, such as Skechers USA Inc (NYSE:SKX) and Crocs Inc (NASDAQ:CROX), although some have diversified their supply chains.

Additionally, sectors like leisure brands such as YETI Holdings Inc (NYSE:YETI), with exposure to China, could mitigate the impact through supply chain diversification, while domestic-oriented businesses may find relief.

Regulatory Shifts

Meanwhile, regulatory shifts may affect sub-segments differently, according to BofA. For example, the bank expects cannabis reform to see positive movement under both parties, but more aggressively under Democratic leadership.

Consumer staples like food companies could face heightened scrutiny over corporate price-gouging, particularly on grocery items, if Democrats retain control. Conversely, a Republican win may favor a hands-off regulatory approach, facilitating mergers and acquisitions in certain industries.

With a Democratic-led administration likely to pursue tighter regulations, especially in areas like labor rights and corporate governance, increased labor protections could impact companies with large, lower-wage workforces, such as Dollar Tree Inc (NASDAQ:DLTR) and Dollar General Corporation (NYSE:DG), by raising wage costs if new overtime rules are implemented.

Conversely, BofA notes that "more lenient antitrust policies" under a Republican administration might encourage mergers and acquisitions, benefiting growth-focused companies like Ulta Beauty Inc (NASDAQ:ULTA) and Lowe’s Companies Inc (NYSE:LOW), which could capitalize on a more relaxed M&A environment.