Four stock sectors and the next four years

There’s been plenty of speculation about what Donald Trump’s return to the White House may mean for sustainability efforts in the US and elsewhere. The president-elect has promised to pull the United States out of the Paris climate accord again, has threatened to dismantle the current administration’s flagship sustainability project – the Inflation Reduction Act (IRA) – and will likely weaken the US Environmental Protection Agency. He has also said he’ll increase oil and gas exploration on federal land, and impose higher tariffs on imported clean technology.

So what does it all mean for investors? Here’s how I see things shaking out across technology, healthcare, industrials, and utilities – four sectors that are prized for their positive sustainability characteristics.

Technology

The view here is decidedly mixed. Sure, tech companies could benefit from regulatory easing that might loosen takeover laws or potential tax cuts that could increase their available cash for investment. But these companies, particularly semiconductor manufacturers, could also be hurt by stiff new tariffs since they have long supply chains that rely heavily on China.

While a full-blown trade war between the US and China isn’t expected, the proposed import tariffs on Chinese goods would increase costs dramatically. For that reason, it makes sense to lean more toward stocks in the software space: its companies are likely to have lower exposure to trade tariffs while potentially benefiting from tax cuts and a more hands-off approach to mergers and acquisitions.

Healthcare

Healthcare bigwigs are closely watching what might happen with the IRA, which lets Medicare – the big government health insurance program – negotiate drug prices.

Past efforts to link what Americans pay for pharmaceuticals to what folks in other countries pay have all failed, and those pharma companies could benefit if Trump chooses to maintain the status quo.

Bigger picture, the new White House might encourage more mergers and acquisitions, which could boost growth for heftier healthcare firms. On the other hand, the likely appointment of a vaccine skeptic as the head of Health and Human Services could lead to slower vaccine development and approvals.

Industrials

Higher electricity infrastructure spending and reshoring will continue to take place over the next four years, with both boasting bipartisan support.

And though it’s not clear what tariffs might be enacted, many US industrial companies are highly dependent on supply chains in Mexico and China. Any new levies on imports would add significant costs to what they do, which would likely result in higher prices for customers.

Meanwhile, the incoming president’s proposed crackdown on illegal immigration is likely to reduce the available US labor supply. So industrial companies with greater automation expertise might benefit from higher demand for these solutions.

And separately constraints on climate transition efforts may slow home renovations and renewables installations, negatively impacting related companies.

Utilities

The IRA has unleashed a wave of investment in onshore wind, solar, and battery storage in the US since it was passed in 2022. And onshore renewable energy is still likely to find support. The IRA has some support in the Republican Party, thanks to the fact that it’s helped create jobs. And even without subsidies, onshore wind and solar are increasingly cost-competitive with gas generation.

That said, delays to coal plant closures could affect the pace of demand for new renewable capacity. In addition, measures to slow down transmission investments could impact the development of new supply.

Over the next four years, offshore wind projects could be at greater risk given their high costs, reliance on subsidies, and dependence on the federal government to secure planning permissions.

One final takeaway

The next four years could create some challenges for sustainability-focused investors. In fact, even the US Department of Labor's ESG rule – which lets fund managers consider environmental, social, and governance (ESG) factors when making investments – could come under threat. The rule went into effect in February 2023 and already has seen multiple challenges in state courts.

Trump would most likely turn the clock back to 2020 and revert to an earlier Labor Department rule that was more restrictive for investors – but still aligned with accepted ESG integration practices. And that’s part of the reason I’m not too worried about ESG investing, despite the prospect of a less aligned White House. Sustainability-focused investors survived an earlier Trump era. While the next four years or so might not be easy, they will do so again.urplus may trigger heightened trade tensions with the US, potentially impacting future trade negotiations and tariffs.

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