ETFs in Focus as Economic Misery Gauge Tilts Toward Kamala Harris

Democratic Kamala Harris could be victorious, per the so-called “misery index” that has successfully predicted presidential elections for four decades, if trends hold good, as quoted on CNBC. This gauge adds the unemployment rate and pace of annualized inflation together for insight into the intensity of voters’ displeasure about the economy.

This index has accurately predicted 15 of the last 16 elections, including all matchups since 1980, according to research firm Strategas, the CNBC article quoted.

Current Misery Index Reading

The current misery index stands at 7.02, which is below the critical level where the incumbent party typically loses an election. The unemployment rate fell to 4.2% in August, contributing to this decline, as shown in the latest jobs report.

Critical Threshold for Democrats

Strategas has identified that the misery index needs to remain below 7.353 in October for the incumbent party—in this case, the Kamala Harris-led Democrats—to secure victory. Historically, readings below this mark indicate that voters aren't feeling economically dissatisfied enough to oust the ruling party.

Factors Supporting Democrats

Falling gasoline prices and a modest decline in the unemployment rate have helped keep economic concerns in check, potentially favoring the Democrats. However, Daniel Clifton, Strategas’ head of policy research, noted that the race is "extremely close," CNBC noted.

ETF Areas to Gain

Against this backdrop, investors should track the investing ETF areas that could gain if Harris wins.

Climate

One of the key achievements of the Biden presidency was signing the Inflation Reduction Act, or IRA — the biggest climate spending law in U.S. history, with the potential to help reduce greenhouse gas emissions up to 42% below the 2005 levels by 2030.

As vice president, Harris argued for the allocation of $20 billion for the Environmental Protection Agency’s (EPA) Greenhouse Gas Reduction Fund. In short, she is in favor of promoting clean energy, including the installation of energy-efficient lighting, and replacing gas furnaces with electric heat pumps. So, clean energy ETFs like iShares Global Clean Energy ETF (ICLN) should gain.

Marijuana

Vice President Kamala Harris urged the DEA in March this year to expedite the rescheduling of marijuana, criticizing its current Schedule 1 classification as "absurd" and "patently unfair." She stressed the need for swift action and highlighted the ongoing efforts toward rescheduling. As a result, marijuana ETFs like Roundhill Cannabis ETF WEED and AdvisorShares Pure US Cannabis ETF MSOS should gain if Harris emerges as a winner.

AI Technology

Harris, known for her involvement in artificial intelligence (AI) policy, could bring increased focus on technology issues if elected, building on initiatives like the government's AI executive order. Her Silicon Valley connections and endorsements suggest strong support from tech circles. Roundhill Magnificent Seven ETF MAGS and Global X Robotics & Artificial Intelligence ETF BOTZ are the likely winners if the AI rally continues (read: AI Stocks & ETFs to Rally on Likely Harris Trade?).

Housing

Harris prioritized affordable housing, advocating for the Rent Relief Act, offering tax credits to renters earning under $100,000, aiming to ease housing cost burdens. iShares US Home Construction ETF ITB should benefit in this case, as the demand for rents should go up.

Tax Policy

She criticized Trump’s tax cuts as benefiting the wealthy and claimed that the booming stock market was not helping the middle class. If the middle class gets better off, ETFs like Invesco S&P SmallCap Consumer Discretionary ETF PSCD should benefit.

U.S. Vice President and Democratic presidential candidate Kamala Harris has proposed hiking the corporate tax rate from 21% to 28% if she wins the November election. According to Goldman Sachs analysts, this hike could lower earnings for companies on the benchmark S&P 500 Index by about 5% (read: Will S&P 500 ETFs be Affected by Harris' Proposed Tax Hike?).

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.

Zacks Investment Research