Wells Fargo offers up its industrials election playbook

Investing.com – The US presidential election is drawing closer, and Wells Fargo has taken a look at the Industrials sector, identifying the potential relative winners and stocks that are at relative risk.

Across the Industrials sector, the key election points center around tax policy, trade/tariffs and regulation, according to the US bank. 

“Broadly speaking a Trump victory would be viewed constructively, but with significant nuance within individual sub-sectors,” analysts at Wells Fargo said, in a note dated Oct. 21, although polls suggest a close race.

Transport: Transport companies appear more favorably positioned in a Trump victory, as Trump’s policies could drive greater industrial and broader economic growth, Wells Fargo said. Tariffs and trade policy are larger headline risks, but we see Trump reward outweighing the risk. 

“We believe a Harris victory preserves the status quo and in that context would prefer companies with more idiosyncratic stories such as NS, XPO or CN,” the bank added.

Autos: “We see the election as a lose-lose for automakers,” Wells Fargo said.

There are 5 policies in play 1) fuel regulations, 2) tariffs, 3) corporation tax, 4) Inflation Reduction Act (IRA) & 5) auto interest deductions. A Trump win likely means easing of fuel regs; however, it likely takes until ~2028 to reverse EPA rules & IRA could be cut in the interim. Also, Trump tariffs would increase costs. A Harris win implies fuel economic burdens stay & taxes rise. Neither signal relief for autos.

Aerospace & Defence: We doubt the election meaningfully shifts defense spending trends, said Wells Fargo, but a Trump win could drive negative headlines around less support for Ukraine. 

Harris could bring further regulatory pressure around business jets similar to Biden, whereas bonus depreciation was extended in Trump’s first term. 

EEMI: Crosscurrents on positioning influences tied to perceived advantages and disadvantages of each election outcome cloud clear-cut conclusions. We think most intriguing is actually just getting past election uncertainty overhang, which could unlock orders and benefit short-cycle industrial. 

In broad strokes, we think a Trump victory is best for earlier-cycle, conversely, Harris appears better for thematic/secular exposure in electrical & heating, ventilation and air conditioning.