US election: the UK stocks affected by America’s poll result

The results of a knife-edge US election have a huge bearing on market sentiment as well as the mood towards UK stocks ranging from Ashtead Group (LSE:AHT) and Barclays (LSE:BARC) to Fevertree Drinks (LSE:FEVR).

Alongside the race for the White House between Donald Trump and Kamala Harris, pictured above, Americans are also voting to fill 435 seats in the House of Representatives and a third of the Senate.

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Their choices help determine the path for US interest rates, as well as the cost outlook for US and global companies in terms of future tariffs, corporation tax and regulation.

In particular, Trump’s plans for lower taxes and modest spending are accompanied with his threat of large import tariffs and immigration curbs. Harris’s proposals for higher taxes, spending and regulations are an expanded version of the Biden administration’s policy platform.

Polling suggests there’s little to choose between the two presidential candidates, meaning that recounts and legal challenges could yet delay the result. In 2020, Joe Biden wasn’t formally declared winner until the following Saturday morning.

The post-election direction of markets also depends on a range of scenarios based on who secures the White House and which party prevails in Congress.

Morgan Stanley said this week that investors should remember that the US president has relatively broad discretion when it comes to trade, foreign policy and immigration.

It said: “These areas could see significant post-election impacts in either a unified or divided government scenario, while changes to tax policy and healthcare require Congressional approval.”

The bank expects that tariff-exposed stocks in Wall Street’s consumer and renewables sectors should outperform in a divided government with a Harris win.

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The initial market reaction to a divided government with a Trump win should lean modestly towards quality cyclicals, Morgan Stanley adds.

If there’s a Republican clean sweep, much will depend on the mood of bond markets.

Yields are likely to spike as the inflationary impact of a Trump victory is expected to dent the outlook for US interest rate cuts.

But should an increase in the 10-year Treasury yield stay within 20 basis points, Morgan Stanley believes that cyclicals such as financials, industrials and commodity-sensitive industries can outperform and take US indices higher.

What will happen to the S&P 500?

Regardless of the election result, UBS continues to believe that the S&P 500 index will rise 15% from current levels to 6,600 by the end of 2025. Its view is supported by the outlook for US growth, lower interest rates and structural support from artificial intelligence (AI).

UBS expects the impact of the US election on European markets will focus on three areas.

These involve harsher trade tariffs and Trump’s potential rollback of some green energy initiatives, as well as the implications for the war in Ukraine and for European defence spending.

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UBS analysts said: “Generally speaking, we see risks to cyclicals, especially those more exposed to China, under a Trump presidency due to potential tariffs. Industrials and utilities would likely be most at risk from any rollback of green spending initiatives.

“And although tax cuts and easier regulations in energy and financials could offer some pockets of support under Trump, we view other factors, such as the tariff worries and a potential increase in bond yields, as bigger drivers of any sector moves.”

The bank expects continuity under a Harris presidency, limiting the impact on European stocks.

It added: “Further drug price regulation would perhaps be a larger risk under the Democrats, but differences in this campaign are smaller than previous ones.”

Trump tariffs and higher taxes

UK stocks with the heaviest exposure to the US include Sunbelt equipment hire owner Ashtead in the FTSE 100 index and 4imprint Group (LSE:FOUR) and Auction Technology Group (LSE:ATG)in the FTSE 250 index.

Rentokil Initial (LSE:RTO) and Hikma Pharmaceuticals (LSE:HIK) generate about 60% of their sales in the US, with Sage Group (The) (LSE:SGE) and Melrose Industries (LSE:MRO) accounting for about 45%.

In a report looking at the election outlook for UK stocks, Peel Hunt said much of the impact of Donald Trump’s proposed policies will depend on how Europe and China react, and whether tariffs imposed on the EU are also applied to the UK.

The bank’s extensive coverage highlighted Fevertree Drinks, which has 32% of sales in the US. About 70% of product by volume is produced in the UK and imported, with the balance coming from domestic US bottlers. It said: “A 20% tariff on imports is likely to have a notable impact.”

It added: “Given the group’s focus is on volume growth in the US, we would expect the company to bear the cost and look to offset and mitigate with further onshoring of US production.”

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Industrial threads business Coats Group (LSE:COA) is more likely to be a beneficiary of harsher tariffs as Peel Hunt believes this would accelerate moves to shift supply chains from China to other Asian markets, such as Vietnam and Indonesia.

Changes to corporation tax, which range from a potential rate of 15% in a Republican sweep through to 28% in the event of a Democratic sweep, are also highlighted in the report.

This means a Trump win could deliver a significant benefit for UK-listed Made in America companies, which include Avon Technologies (LSE:AVON).

While the banking sector has scaled back its US exposure in recent years, Barclays still has significant operations in investment banking and US consumer lending that could benefit from a lower tax rate.

The company states that around 40% of group income is US dollar denominated, along with around 30% of the group’s cost base. Peel Hunt said: “This would suggest that on balance a Trump victory might be taken as a positive for the shares, although any volatility in financial markets could also create shorter-term trading opportunities.”

Higher corporation taxes under Harris may end up impacting Wisconsin-based corporate merchandise firm 4imprint, but on the other hand Trump’s proposed tariffs on goods from China would impact its supply costs.

Trump victory boost to three UK firms

In support services, Peel Hunt suspects that a Trump victory could potentially carry a slightly greater benefit for Ashtead given the proposed cuts to corporation tax that could stimulate private sector investment.

It has a similar view on Balfour Beatty (LSE:BBY), which derives 20% of its earnings from the US and has 58% of its £1.3 billion investment portfolio in US assets.

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Mining has very limited direct exposure to the US, although Peel Hunt draws attention to iron ore pellets producer Ferrexpo (LSE:FXPO) due to Trump’s vow to end the Ukraine war.

The bank said: “Given its Ukrainian mine and processing plant, Ferrexpo currently encapsulates the potential of a settlement in Ukraine.

“A settlement, allowing far cheaper shipping of Ferrexpo’s pellets to markets, could see the shares recover back towards the 300-400p level where they traded in late 2020 to early 2022.”