The stock market will soar regardless of who wins the US election — and one trade in particular will thrive, says Fundstrat's Tom Lee
- Regardless of who wins the November presidential election, expect the stock market to rise as investors jump into risk-on mode, Fundstrat's Tom Lee said in a note on Tuesday.
- "At least 90% of portfolio strategy would be identical under either win," Lee said.
- While there could be volatility in the market leading up to the election as investors turn risk-averse, the outcome of the election will be bullish for stocks, Lee said.
- Here's the post-election investment strategy for either a Trump or Biden win, according to Lee.
- Visit the Business Insider homepage for more stories.
Investment implications for either a Joe Biden presidency or the re-election of President Donald Trump are nearly identical, according to Fundstrat's Tom Lee.
In a note on Tuesday, Lee spelled out the economic and stock market impact a Trump or Biden presidency would have, and how investors should be positioned post-election.
Pre-election, Lee wouldn't be surprised to see volatility over the next 30 days, as risk-averse investors are fearing mainly two things: a contested election outcome, or "something bad" happening pre-election like a worsening condition of Trump's COVID-19 diagnosis or a delayed election.
But post-election, all signs point to bullishness for stocks.
Under either a Trump or Biden win this November, Lee expects the following:
1. Stimulus passes.
2. White House focuses on further economic stimulus.
3. Virus is probably contained in mid-2021.
4. US economy is cranking.
5. Inflation risk rises.
6. Investors are "risk-on."
Given these likely scenarios, the post-election strategy investors should follow is being overweight cyclicals, also known as the "epicenter" stocks. These are stocks that were most hurt from the economic declines associated with COVID-19, and are set to benefit from a steady reopening of the economy.
Additionally, investors should sell the "economy closed" winners, namely technology stocks that have thrived during the COVID-19 lockdowns.
There's only one big difference between a Trump and Biden win, according to Lee. If Trump wins, expect Trump to cut taxes. If Biden wins, expect Biden to raise the capital gains tax, leading to the selling of winners like technology stocks.
But not all analysts are so sure that Biden will raise taxes immediately in office. In a note on Monday, JPMorgan said that Biden will instead put his immediate focus on rebuilding the economy rather than raising taxes, and that any tax increases would likely be "watered down."