A “value stock” is a stock whose price is low compared with the usual stock market criteria. Value stocks are mainly found in financial services, healthcare, industry and energy. A growth stock is the share of a company whose profits (revenues) are growing faster than average, because it is in a high-growth sector and has significant market power. Growth stocks are mainly found in new technologies, such as the Magnificent 7 (Apple, Microsoft, Alphabet, Amazon, Tesla, Meta, Nvidia).
We wonder whether the outcome of the US election will influence the relative performance of growth stocks versus value stocks.
Donald Trump has said he wants to implement tariffs on all US imports and repeal the Inflation Reduction Act (IRA). Donald Trump also wants to reduce immigration much more radically than Kamala Harris.
Kamala Harris wants to help property buyers, support parents from the birth of their first child, regulate certain prices and cut taxes for the middle class.
We can wait:
- of the election of Donald Trump, a surge in inflation (tariffs, a halt to immigration) and a slowdown in growth (a halt to immigration, abolition of the IRA) compared to what would happen if Kamala Harris were elected ;
- of the election of Kamala Harris, a rise in the public deficit beyond the level that would result from the election of Donald Trump, with support from middle-class demand.
What are the implications for value stocks and growth stocks?
- inflation (election of Donald Trump) would lead to a rise in interest rates, which is unfavorable to growth stocks; however, rising interest rates favor companies that hold a lot of cash ;
- the decline in growth would also be unfavorable to growth stocks, especially if, in the case of Donald Trump’s election, it resulted from the abolition of the IRA;
- rising social spending and public deficits (Kamala Harris’ election) would boost value stocks by stimulating demand for goods consumed by the middle class (healthcare, energy, industrial products).
All in all, we can expect a narrowing of the gap between growth and value indices, in the case of Donald Trump’s election by the decline in “growth stocks”, in the case of Kamala Harris’s election by the rise in “value stocks”.
