Analyst Predicts 'Initially Negative Reaction' In Auto Stocks If Democrats Sweep Election

The U.S. presidential election is less than a month away, and it will likely be a major catalyst for the stock market no matter how the votes end up falling. On Friday, Bank of America auto analyst John Murphy took a deep look into how the election could impact the U.S. auto industry.

Key Election Issues: Murphy said there are five key policy issues at stake in November that could have a major impact on auto stocks:

• Environmental standards.
• Tax code.
• Trade relationships.
• The healthcare system.
• Consumer finance protection.

In general, Murphy said a Joe Biden victory would bring more policy predictability and stability to the auto industry. However, he said the potential for stricter emission regulations and consumer protections would likely make a Biden victory a net negative for auto stocks from a policy perspective.

At the same time, Murphy said a Donald Trump victory would spell more of the same for auto investors, for better or worse. The status quo on trade, tax and environmental regulations would be a positive for auto stocks, while the unpredictability and volatility associated with the Trump administration make multi-year investment and product planning very difficult.

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Likely Outcomes: Biden is currently leading Trump by roughly 10% national polls. Murphy said auto stocks would likely initially react negatively to a Democratic sweep of the White House and Congress. However, he said a Biden victory plus Republicans maintaining control of the Senate would likely be a positive near-term catalyst for auto stocks.

“In an election outcome of a Biden presidency but a split Congress, we would anticipate an initially positive reaction for automotive stocks, as the likelihood of policy standstill mitigates risk of bottom line impediments, while the new administration could provide greater stability and predictability that would support companies’ longer-term decision-making,” Murphy wrote in a note.

Bank of America has the following ratings and price targets for automaker stocks:

• General Motors Company GM, Buy rating, $60 target.
• Ford Motor Company F, Buy rating, $9 target.
• Fiat Chrysler Automobiles NV FCAU, Buy rating, $18.87 target.
• Ferrari NV RACE, Buy rating, $235 target.
• Tesla Inc TSLA, Neutral rating, $550 target.

Benzinga’s Take: Third-quarter earnings season will be critical for the five companies mentioned above after each of them reported negative revenue growth in the second quarter. Another disappointing quarter of revenue growth coupled with a potential “blue wave” election in November could spell trouble for the auto industry.