Piper Sandler Advises Investors to Take Trump’s Trade Policies Seriously

In a recent note, Piper Sandler reviewed its election portfolios amid the possibility of Kamala Harris leading the Democratic ticket, concluding that no major adjustments are necessary.

Harris and the Democratic Agenda

Piper Sandler notes that the Democratic agenda, as championed by President Biden, reflects the progressive wing of the party and is expected to remain unchanged under Harris. The Senate remains a key hurdle for both Biden and Harris in implementing their policies.

Biden’s Build Back Better plan covered major progressive priorities like infrastructure, green energy, and drug price controls, although ambitious social spending and significant tax hikes were left unachieved. Harris, who has pledged to prioritize the „care economy,“ is seen as continuing Biden’s policy trajectory. Given her limited tenure in the Senate, Harris has not been deeply tied to specific issues, aside from her strong stance on abortion following the overturning of Roe v. Wade.

Constraints and Political Dynamics

Both Biden and Harris face significant challenges in the Senate. Resistance from Senate Democrats such as Joe Manchin and Kyrsten Sinema hampered Biden’s agenda, and Harris, being more progressive, is likely to face similar obstacles. Even with a favorable scenario for Democrats in a 50-50 Senate, moderate Democrats like Jon Tester or Mark Warner will be crucial in passing legislation.

Trump’s Trade and Macro Risks

Piper Sandler emphasizes that investors should seriously consider Trump’s trade policies. Trade-related issues constitute about one-third of the Trump portfolio, complemented by macro themes like interest rates, the dollar, and gold. These factors reflect the unique macroeconomic risks associated with Trump, who has fewer policy tools at his disposal to achieve his goals. The remainder of the Trump portfolio includes long positions in energy and defense sectors, with potential policy shifts in healthcare and immigration creating mixed impacts.

Market Reactions and Portfolio Adjustments

Following Biden’s announcement to withdraw from the race and endorse Harris, Wall Street saw a shift back to mega-cap growth stocks, tempering the recent rally in small-cap stocks. U.S. government bond investors also adjusted their positions, unwinding trades that were based on expectations of a second Trump presidency.

The S&P 500, which has already shown substantial gains this year, is not expected to deliver outsized returns moving forward. JPMorgan Private Bank has already reduced its „overweight“ position in equities after the index reached 5,600 earlier this month.

Harris‘ Potential Executive Actions

Piper Sandler points out that Harris may be more willing than Biden to issue executive actions, even if it means facing more court reversals. Despite this, the investment strategy remains the same, with Harris potentially having better odds of winning the election.

Harris’ Portfolio: Continuation of Regulatory Policies

Harris is expected to continue Biden’s regulatory agenda, which poses risks to various sectors, including internal combustion engine car companies, financial firms, drug manufacturers, and companies impacted by labor policies. Approximately one-third of the Harris portfolio is focused on green energy themes, with solar and EV stocks as long positions.

Election Outcome Implications

The investment portfolios are designed to respond to the election outcome, with the Harris portfolio expected to perform better under a Democratic win and the Trump portfolio under a Republican victory. Piper Sandler underscores the importance of focusing on the policies rather than the political rhetoric, as these policies will significantly impact market dynamics and investment strategies.

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