CITIC Securities: How will the change of US president affect the structure of US stocks?

According to the financial news app Zhitong Finance, Xingye Securities released a research report stating that the recent Trump shooting incident has increased his chances of re-election. If Trump is re-elected, there may be at least three aspects of change worth noting, and the structure of the US stock market may face changes again. Firstly, Trump's attitude towards tech giants. Unlike the "governing via Twitter" approach in the previous term, Trump's relationship with tech giants has deteriorated significantly after the "Capitol Hill incident." With technological advancements, the importance and urgency of preventing a tech company from excessively controlling data to harm national security or engage in great power competition are also increasing. Secondly, during the Biden administration, the US foreign policy is in a state of flux, while the Republican Party has a strong demand for strengthening US military capabilities. Thirdly, the US's control over global geopolitical situations seems to have weakened, with other economies besides the US having a greater impact on geopolitical situations or energy prices.

Key points from Xingye Securities:

The US presidential election is the focus event of 2024. In fact, looking back at the performance of the US stock market during the presidencies after the Cold War, it is not difficult to find that the policy inclinations of the presidents often have a significant impact on the structural changes of the US stock market. There have been several noticeable changes at least.

Firstly, after the end of the Cold War and the reduction of military spending during the Clinton era to balance the budget, defense stocks underperformed relatively in the 1990s. However, starting from the 2000s, with the rise of anti-terrorism demands, defense stocks began to outperform again.

Secondly, the financial liberalization that began in the 1970s gradually accelerated in the late 1980s, until the Clinton administration explicitly allowed mixed operations, and the Bush administration also maintained a loose financial regulatory environment, leading to sustained excess returns for financial stocks from the 1990s until before the subprime crisis. However, the outbreak of the subprime crisis and Obama's "big turn" in financial regulation meant that financial stocks no longer had trend-based excess returns.

Thirdly, after the Cold War, US tech stocks experienced two rounds of upward trends. The first was during the Clinton era, where the civilianization of military technology after the Cold War promoted the popularization of home computers and internet technology. The second was from Obama's second term to the present, accompanying the evolution of the internet from the computer end to the mobile end, up to the breakthrough in artificial intelligence in the past two years. This industry trend has been strengthened during the Trump and Biden administrations, which is not unrelated to their continued efforts to combat competitors with a "small courtyard high wall" approach and the latter's strengthening of industrial policies.

Fourthly, global energy prices and US energy stocks are significantly influenced by geopolitical factors, which in turn are influenced by the foreign policies of US presidents. During Obama's second term, US-Russia relations deteriorated sharply, with the 2014 Ukraine crisis being a key turning point. The US imposed a series of economic sanctions on Russia, pursuing a "weaken Russia" policy, leading to a sharp drop in oil prices and a clear underperformance of energy stocks. Since the Biden administration began, geopolitical tensions have escalated into armed conflicts, and energy stocks have once again shown excess returns.

The recent Trump shooting incident has increased his chances of re-election. If Trump is re-elected, there may be at least three aspects of change worth noting, and the structure of the US stock market may face changes again. Firstly, Trump's attitude towards tech giants. Unlike the "governing via Twitter" approach in the previous term, Trump's relationship with tech giants has deteriorated significantly after the "Capitol Hill incident." With technological advancements, the importance and urgency of preventing a tech company from excessively controlling data to harm national security or engage in great power competition are also increasing Secondly, during the Biden administration, the US foreign policy is in a state of uncertainty, while the Republican Party has a strong demand to strengthen the US military-industrial capabilities. Thirdly, the US seems to have weakened its control over the global geopolitical situation, with other economies besides the US having a greater impact on the geopolitical situation or energy prices.

Risk Warning: Uncertainty in domestic and foreign economic policies, geopolitical risks, global economic and financial risks