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Musk’s $2 Trillion of Budget Cuts Would Have These Stocks Moving

Chad Anderson, founder and managing partner at Space Capital, joins BNN Bloomberg to discuss Elon Musk's SpaceX ambitons.

(Bloomberg) -- With the US presidential election a day away, Wall Street strategists are preparing for the economic ramifications of former President Donald Trump or Vice President Kamala Harris winning, from taxes to tariffs to immigration. 

But there’s a separate risk investment pros are game-planning for that’s specific to a Trump victory: Elon Musk in the White House.

Trump has said that he would establish a government efficiency commission headed by the Tesla Inc. chief executive officer if he wins. Last week, Musk pledged to slash at least $2 trillion from the US federal budget. Now, Piper Sandler & Co. has put together a list of 100 stocks that would be most affected by the plan, with Boeing Co. and General Dynamics Corp. among heavyweights that could see swings. 

READ: Musk Wants $2 Trillion Cut From US Budget. That Would Be Tough.

A team led by Michael Kantrowitz, who last week won a top spot in this year’s Institutional Investor survey of US portfolio strategists, said a basket of stocks most sensitive to government spending has underperformed as Trump’s odds of winning increased — underscoring nervousness around what his administration will do to companies that rely on federal dollars.

“The Elon headlines had clients asking about which stocks would be at risk of major cuts,” Kantrowitz said, adding that the list was a way to highlight stocks sensitive to government budget plans.  

The list includes corporate giants like Moderna Inc., FedEx Corp., CVS Health Corp. and Honeywell International Inc. among others, with industries ranging from aerospace equipment to defense manufacturing to biopharmaceuticals to health-plan providers. However, he emphasized that not all of the names in the lineup have negative risks.

“Some of the aerospace and defense names could get a boost in the event of a Republican sweep on more defense spending,” he said. “So those would be a positive skew.”

Musk floated the idea of unprecedented budget cuts at Trump’s rally in Madison Square Garden on Oct. 27. The $2 trillion reduction target surpasses the amount Congress spends annually on government agency operations, including defense, and would likely entail substantial cuts to key social safety net programs such as Medicare, Medicaid, Social Security and veterans’ benefits.

READ: What the Harris-Trump Election Means for Markets: QuickTake

With the election heading down to the wire, polls show Trump and Harris in a dead heat both nationally and across the pivotal swing states that will decide the election.

Investors have been buzzing about the possibilities of the race, though they’ve been reticent about buying and selling stocks pegged to certain outcomes. The stock market’s performance this election cycle is different from prior ones, with equity indexes trading near all time highs and the Cboe Volatility Index, or VIX, at relatively low levels, while the typical de-risking is also not happening, strategists at Citigroup Inc. wrote in a note to clients Monday. 

Should Trump win, analysts across Wall Street have pointed to companies with high revenue exposure to China among the stocks to watch, particularly prominent names like chipmakers Nvidia Corp., Broadcom Inc. and Qualcomm Inc. Oil, natural gas and traditional energy companies are seen as likely beneficiaries, with Baker Hughes Co., Exxon Mobil Corp. and ConocoPhillips among those to watch.

A Harris victory, meanwhile, could be encouraging for electric-vehicle makers such as Tesla, Rivian Automotive Inc. and Lucid Group Inc. Homebuilders also could get a lift from Harris’s plans to spur the housing market, putting names like DR Horton Inc., Lennar Corp. and KB Home in the spotlight.

Two Goldman Sachs indexes that follow investments linked to Democratic and Republican victories show that after rising steadily since late September, the basket linked to a Trump win is again starting to fade, while the one liked to a Harris victory is climbing.

--With assistance from Steven T. Dennis and Esha Dey.

©2024 Bloomberg L.P.