As the US election approaches, we believe the stock market is increasingly pricing in a full Democratic victory, with some of the potential political implications already reflected in sector performance and valuations. While the election outcome may influence sentiment, regulation, fiscal policy and budgetary priorities, we continue to believe that earnings growth and structural investment themes will remain the primary drivers of long-term equity returns. Let's analyze in more detail the possible scenarios for some of the most interesting stock sectors.
Full victory for the Republicans
AI Technology and Infrastructure A full Republican victory would likely be welcomed by the AI hardware, semiconductor and data center infrastructure sectors. Investors would expect the current expansion-friendly environment to continue, with faster approval processes, fewer regulatory hurdles and support for US leadership in AI. Potential beneficiaries include Nvidia, Broadcom, Arista and Micron, along with the broader AI infrastructure supply chain. Extending the reasoning to software, in this scenario we would expect a reduction in compliance burdens in the short term, limiting new federal constraints on AI features in software products and maintaining a more favorable context for innovation and M&A operations. Very large AI application software companies would likely benefit from lower perceived regulatory risk.
Industrial, infrastructure and energy positive scenario for defense, conventional power generation, electrical equipment, data center infrastructure, reshoring and domestic manufacturing. Favorable authorization and energy policies could strengthen current capital investment cycles.
Finance A full Republican victory would strengthen deregulation, bank consolidation, crypto and capital formation, benefiting banks and traders sensitive to transaction volume, although potentially higher long-term rates could weigh on real estate brokers.
Healthcare and Biopharma A clear Republican victory would likely be positive for large-cap biopharma. Maintaining a Republican majority would likely reduce the likelihood of major new drug pricing laws, with a greater emphasis on implementing existing IRA reforms rather than extending them. Most-favoured-nation mechanisms and international reference prices would remain a media risk, but a broader legislative extension would be less likely. The sector may also face less pressure on its economic balances, with a greater emphasis on deregulation, competition and program integrity rather than new price requirements.
Full victory for the Democrats
AI Technology and Infrastructure and Software Investors may expect increased caution around data center development, particularly around energy consumption, permitting, water use and impacts on local communities. Even if the underlying AI investment cycle remains intact, fears of longer permitting timelines or slower implementation could weigh on sentiment and multiples across the entire AI hardware ecosystem. An approach that would also involve AI and its limits of use. While far-reaching legislation would remain difficult under a Republican president, increased hearings, investigations and state-level initiatives could raise compliance costs and weigh on sentiment toward larger software companies, while cybersecurity and government spending on IT could see relative support.
Industrial, infrastructure and energy The victory of the Democrats would be favorable for renewables, electrification, energy efficiency and investments in clean energy. Grid and nuclear investments would likely remain strong, while defense spending and data center expansion may come under increased scrutiny.
Finance Moderately negative scenario for financials, with a focus on banks, M&A and consumer fees and additional regulatory risks for payments and crypto. However, with the Trump administration and related regulators in place until 2028, we believe the impact would be more on the media side and multiples than a significant change in earnings.
Healthcare and biopharma The outcome would be more challenging for large-cap biopharma to manage. Investors may expect increased risk of additional drug pricing initiatives, congressional investigations and industry scrutiny, including a potential extension of Medicare drug pricing negotiations or other affordability measures.
Divided government
AI Technology and Infrastructure If markets are increasingly positioning themselves for a Democratic victory, a mixed result with higher-than-expected Republican representation could be welcomed by investors in AI hardware, reducing the perceived risk of more restrictive data center policies. On the software side, the stalemate would limit major new federal laws, largely preserving the current minimally invasive federal framework, while state regulations would continue to evolve. This outcome is often considered relatively neutral to constructive for software, as it reduces the risk of abrupt regulatory changes while still allowing for incremental bipartisan progress on cybersecurity or specific AI topics.
Industrial, infrastructure and energy The least disruptive scenario. Current investment cycles in energy, grid modernization, defense, aerospace and industrial infrastructure would likely continue largely unchanged.
Finance Potentially the 'Goldilocks' scenario, which would limit regulatory risk while reducing uncertainty over fiscal policy and interest rates.
Healthcare and Biopharma A divided Congress would be the preferable scenario for large-cap biopharma, especially because it reduces political uncertainty. Legislative gridlock would make it more difficult to pass major health care legislation, reducing the risk of significant changes in drug prices and reimbursement. Fundamentals may change little, but greater policy visibility could support valuation multiples.
