These 2 sectors of the stock market are poised to benefit most if Trump wins in November, RBC says

• A Trump win would benefit energy and financial stocks the most, RBC analysts say.
• They point to Trump's proposed corporate tax cuts and lighter regulation of oil and gas firms.

A Donald Trump win in November could be the best outcome for stocks, and two sectors in particular would benefit the most, according to RBC Capital Markets.

The bank pointed to stocks in the energy and financials sectors, which former President Donald Trump's policies have long supported.

Those sectors would see the most upside from a Trump win, especially if Republicans take both the White House and Congress, the analysts say.

"Some of the traditional Trump trades continue to emerge in policy assessments. Among our US analysts, Energy and Financials had some of the most bullish tilts in a Republican sweep scenario, and some of the most bearish tilts in a Democratic sweep scenario," analysts said in the report.

The report, released Wednesday, draws insights from a survey of RBC analysts.

The analysts say a Democratic sweep would be bearish for energy and financials, while a split Congress and win from Vice President Kamala Harris would be more neutral.

Energy

The analysts say Trump's policies favor domestic fossil fuel production, since they aim to reduce regulatory requirements, which would lower costs. That would likely drive further oil and gas production, they say.

They add that less regulation would move pipeline costs lower, which would allow for more construction in transporting and storing infrastructure.

Harris's energy policies, on the other hand, would shift more incentive to electric vehicles, posing downside risks to future oil demand, the analysts say.

"We think the conventional wisdom that Harris is more favorable to alternative Energy than Trump, and that Trump is more favorable to traditional Energy than Harris, is generally correct and that their biases here are one of the biggest differences from an investment perspective between the two on domestic policy," the analysts said.

They note, however, that Harris's pledge to continue allowing fracking is a positive for the industry.

"Harris' insistence that she would not ban fracking makes her less of a risk for traditional Energy than some have believed," they wrote.

They acknowledge, too, that Trump's impact on energy and industrial stocks that have benefited from the IRA is "complicated," and that domestic production has reached higher levels under Biden than they did under Trump.

Financials

For financials, the analysts say that Trump's corporate tax cuts are the biggest reason for their bullish outlook.

In a speech last month, Trump said he would push to lower the corporate income tax rate to 15%. During his presidency, his 2017 Tax Cuts and Jobs Act lowered the corporate tax rate to 21%, a decrease from 35%.

Harris, meanwhile, plans to raise the corporate tax rate from 21% to 28%.

The analysts also see Trump, and Republicans in general, creating a more favorable regulatory environment with less oversight for financials.

"Specifically, we believe the regulatory approval process for larger bank deals would be less onerous and the timelines could be accelerated, which would help stimulate more M&A across our space," RBC's regional bank analysts said.

Some officials, though, have sounded the alarm on Trump's anti-regulatory stance. Last week, Treasury Secretary Janet Yellen criticized the former administration, saying it didn't do enough to protect the economy.

"Put simply, we were without crucial tools to identify and help respond to risks to financial stability," she said, noting that the Financial Stability Oversight Council lost funding and staffing during Trump's presidency.

Election results to bring more stability

Overall, the analysts say that the more important outcome is simply the end of the election, which has drummed up considerable uncertainty and volatility for markets ahead of the November 5 contest.

"The survey results add to our growing belief that the thing that may matter most for US equities (for 2024) is getting past the event so companies and investors know what they are dealing with," the analysts said.