SA Asks: How will the U.S. election results impact energy stocks?
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Now that Election Day is over, investors will be eager to find out how the results will impact specific sectors.
Which brings us to our latest SA Asks question: how will the U.S. election results impact energy stocks?
We asked Seeking Alpha analysts Laura Starks, Power Hedge and Long Player for their thoughts on the topic.
Laura Starks: The Trump win benefits energy stocks in several sectors, samples of which are Cheniere (LNG), Appalachian gas producers like Expand Energy (EXE), gas transport companies like Williams (WMB), automobile companies like Ford (F), majors like ExxonMobil (XOM), independent power producers like Constellation (CEG), and refiners like Valero (VLO).
Because of the need and desire by voters to limit government spending, I would expect less funding for the climate change initiatives in the Inflation Reduction Act. Companies relying on the US government for support and subsidies may see less of it.
Power Hedge, Investing Group Leader for Energy Profits in Dividends: The Republicans are generally considered to be less restrictive about fracking and expansion of drilling. Domestic oil and gas production surged during the first Trump presidency, but that did not translate into higher returns.
In fact, the iShares U.S. Energy ETF (NYSEARCA:IYE) was actually down 44.40% over Trump’s first term, and that was not entirely due to the effects of the pandemic. From the time that Trump took office until December 31, 2019, the iShares Energy Index was down 20.91%. The Biden Administration was far better than Trump’s from an energy investment perspective.
The Republican policies revolving around reducing some of the regulations on oil and gas drilling are likely to prove better for consumers of energy, but they may not be as good at putting oil and gas profits into the hands of investors. With that said, however, most domestic energy drillers are now much more efficient and have implemented aggressive buyback and dividend programs that did not exist during the first Trump administration.
If drilling companies can increase their production under a Republican administration without sacrificing their current focus on earning and returning money to shareholders, we could see a very different outcome than we saw the last time the Republicans had majority control of the United States’ government.
Long Player, Investing Group Leader: Last time around, Trump was not really into administration. Therefore, as desks emptied out, he never replaced people. Permits piled up. Those that were issued had less than adequate work. As a result, the industry slowly choked until the Biden administration came in and unraveled things. I would similarly expect a lack of attention to detail this time around.
On monetary policy, he ran deficits and pushed the Federal Reserve to keep interest rates low. Combined with his tariff policy, pricing inflation should hit the industry if he repeats the same thing. It will take some time for this to happen, although the tariff policy could speed things up compared to the first time around.