Why a Harris victory and GOP Senate takeover is the best outcome for consumer stocks

By Chris Matthews

A Democratic White House would block tariffs, while Senate Republicans could blunt tax increases

Polls indicate that the U.S. general election in November will be close, with Democrats and Republicans both in a position to win full control of both the White House and Congress.

Yet the policy differences between the two parties are stark, and the greatest impacts of their potential policy changes will be felt by the U.S. consumer and the corporations that sell to them, according to Raymond James's Washington policy analyst Ed Mills.

"The election outcome will be closely watched across all sectors, but with tax cuts, tariffs, trade wars, immigration fights and Fed rate decisions looming large over the 2025 agenda, the outcome of the 2024 election will be key to understanding the impact on the consumer," Mills wrote in a Tuesday client report.

Mills predicts there's a 50% chance that Donald Trump and the Republican Party will take full control of the White House and Congress, and a 20% chance of a Democratic sweep, but that split government would be generally preferable for companies catering to the American consumer.

"The best scenario for the consumer sector would be a Democratic presidency and a split Congress, as greater certainty emerges on trade given a lack of trade wars against China or Mexico," he wrote.

He argued that a Republican sweep would be a negative for consumer stocks, given Trump's threats to impose an across-the-board 10% tariff on all imported products and a 60% tariff on the more than $500 billion in products Americans import from China each year.

Investors should also be on the lookout for a resurgence of inflation under such a scenario given the GOP's "push for higher tariffs, stricter immigration policy, continued fiscal spending and an extension of the 2017 tax cuts" that would blow out the deficit while simultaneously shrinking the U.S. labor market, Mills added.

A Democratic sweep would increase the chances of higher taxes for both corporations and wealthy consumers, which would reduce corporate profits broadly but hit companies that cater to richer Americans most acutely.

A Trump victory with Democrats controlling one house of Congress could lead to more restraint on the deficit if Democrats insist on rolling back some of the 2017 tax cuts for corporations and families making more than $400,000, but would still enable Trump to enact tariffs and attempt a mass deportation of millions of workers in the U.S. labor force, according to the analysis.

If Vice President Kamala Harris, the presumptive Democratic nominee, were to win the presidency while Republicans take advantage of a favorable Senate map to win back the upper chamber, that could be a bullish scenario for the U.S. consumer. That would take new tariffs and mass deportation off the table, while restraining the Democratic impulse to raise taxes, Mills noted. He placed a 15% probability of this outcome.

The best-positioned consumer stocks to perform under this scenario include Hillman Solutions Corp. (HLMN), Masco Corp. (MAS), Murphy USA Inc. (MUSA) , Tecnoglass Inc. (TGLS) , Harley-Davidson Inc. (HOG), Planet Fitness Inc. (PLNT), Polaris Inc. (PII), Ceasars Entertainment Inc. (CZR), Costco Wholesale Corp. (COST), Walmart Inc. (WMT), Crocs Inc. (CROX), Skechers USA Inc. (SKX), Colgate-Palmolive Co. (CL), Elf Beauty Inc. (ELF) and Helen of Troy Ltd. (HELE)

But the most likely outcome at this time is a full Republican sweep of the White House and Congress, according to Mills, gave that scenario a 50% chance of being realized.

In a Republican sweep, investors should shy away from broadline retail stocks like Costco and Walmart and look for companies that have a more domestic-based supply chain or those with pricing power that enables them to pass on the costs of tariffs to the consumer, as well as those serving high-end consumers.

Stocks to watch in this scenario include Tractor Supply Co. (TSCO), Lululemon Athletica Inc. (LULU), Ralph Lauren Corp. (RL), Bath and Body Works Inc. (BBWI), Church & Dwight Co. (CHD), Spectrum Brands Holdings Inc. (SPB), Ulta Beauty Inc. (ULTA), Acushnet Holdings Corp. (GOLF), Xponential Fitness Inc. (XPOF), AutoZone Inc. (AZO), Griffon Corp. (GFF) and Mohawk Industries Inc. (MHK)

-Chris Matthews

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07-24-24 0829ET

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