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Trump's Approval Rises Before Midterms: ETFs to Lose/Gain

Sanghamitra Saha
Canada Goose (GOOS) saw a big move last session, as its shares jumped more than 10% on the day, amid huge volumes.

With midterm elections knocking at the door, recent polls show Trump gaining popularity and even surpassing Obama's approval rating taken in late October 2010. Per NBC/Wall Street Journal poll, Trump's approval rating is now at the highest at 47% against Obama’s 45% around four years back.

Trump’s polling average on RealClearPolitics has risen from below 41% earlier this month to 44.2% at the moment. Also, the polls show 90% approval rating for Trump from the Republicans.

Overall, the polls put up Democrats with a 9-point lead over Republicans for the congressional control. About 50% of likely voters want Congress to have a Democratic bent while 41% want the status quo or Republicans to maintain the majority.

The upcoming midterm elections scheduled on Nov 6 are expected to result in a split government at Capitol Hill with Democrats winning back the House and the Republicans managing a limited hold on the Senate, per CNBC.

Although Democrats are likely to win, with the recent improvement in Trump’s approval rating, GOP leaders expect to lower the number of seats they would miss, per analysts. This will enable GOP to keep their advantage in the chamber.

And if it happens, Trump-friendly policies should be in favorable positions.

Likely Winners

Pharma to Blossom

Trump’s announcement of the drug plans in May was in the best interest of pharma companies. The drug plans will likely put pressure on U.S. trading partners, forcing them to pay more for medicines. So, the immediate impact should be positive on pharma ETFs like Invesco Dynamic Pharmaceuticals ETF PJP (read: Pharma & Biotech ETFs Soar on Trump's Drug Plan).

Regional Banks to Perform Better

Historically, financial stocks have performed better with Republicans in the White House, courtesy of tolerant policies. Plus, the Congress approved a plan on May 22 to scale down stringent banking regulations or the Dodd-Franck act undertaken in the height of the 2008 financial crisis.

While the move sounds great for the entire banking industry, small-cap banks should actually celebrate. The bill lowers federal oversight of banks between $50 billion and $250 billion in assets, and “eases lending, capital and trading rules for smaller lenders.” So, SPDR S&P Regional Banking ETF KRE could be a lucrative choice (read: Reginal Bank ETFs & Stocks to Party on Dodd-Frank Easing).

Bet Big on Infrastructure & Utility

Trump is in favor of beefing up public spending by hundreds of billions of dollars on infrastructure. Thus, Utilities ETFs like First Trust Utilities AlphaDEX Fund FXU or construction ETFs like Invesco Dynamic Building & Construction Portfolio ETF (PKB are likely to benefit from this trend.

Defense is Now a Safe Bet

Even if there is a divided government, any major fiscal tightening is improbable in aerospace and defense stocks, despite Democrats' pledging to roll back the Trump tax cuts passed in late 2017, per an article published on CNBC. Also, Trump appears aggressive in foreign policy and signed the $717-billion 2019 defense spending bill into law — the largest allotted to U.S. defense ion August. So, defense and aerospace ETFs like iShares US Aerospace & Defense (ITAshould trade healthy (read: Must-Have Aerospace and Defense ETFs & Stocks).

Likely Loser

Trade Tensions Likely to Loom

Trump’s popularity gain hints at the continuation of the trade war with China. Goldman Sachs believes that “the President's veto power and the lack of political consensus regarding appropriate trade policy reduce the likelihood that either Democrats or Republicans enact legislation that will resolve the ongoing trade tensions." So, China ETFs like iShares China Large-Cap ETF FXI may be vulnerable at the moment.



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FT-UTIL ALPHA (FXU): ETF Research Reports
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ISHARS-CHINA LC (FXI): ETF Research Reports
ISHARS-US AEROS (ITA): ETF Research Reports
PWRSH-DYN BLDG (PKB): ETF Research Reports
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