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Capital goods to gain from Biden policies as energy sector faces pressure – S&P

Some corporates will face significant sector-specific challenges in 2021 as the U.S. economy charts its recovery from the coronavirus pandemic under President Joe Biden's administration, but certain sectors may benefit from his policies while others could emerge as losers, according to a new report from S&P Global Ratings.

Among the sectors that could get a boost under the new administration are capital goods and building materials due to Biden's $2 trillion plan to rebuild the country's infrastructure, S&P Global Ratings said. Increased spending on efforts to combat climate change and more stable policies on trade could also support capital goods issuers.

In addition, the consumer goods sector stands to benefit from Biden's proposed $1.9 trillion coronavirus relief package, which seeks to provide $1,400 stimulus checks to Americans and prop up household spending.

The energy and power sectors are expected to come under pressure due to tougher climate and environmental regulations under Biden, who is having the U.S. rejoin the Paris Agreement on climate change and is aiming to completely decarbonize the power sector by 2035. Some midstream companies could take a hit to their cash flows due to Biden's plan to stop new federal drilling permits, according to S&P Global Ratings.

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For the technology sector, S&P Global Ratings projected a mixed outlook, saying it expects the Biden administration to lower trade barriers and adopt more predictable policies while also pursuing potential antitrust actions. The rating agency noted, however, that the political ties of Vice President Kamala Harris to tech-heavy California could be a "modest positive" for the sector.

"We believe the threat of antitrust actions by regulators could extract changes to how large tech companies operate, but any actions, enforced or self-selected, would be manageable," S&P Global Ratings said.

Healthcare reforms will continue to be gradual as the complexity of issues and partisanship in Washington make it a slow process. The industry remains "legislatively exposed" amid consensus on certain issues such as pricing limits for pharmaceuticals, S&P Global Ratings said.

"While the likelihood of something being passed and implemented in the near term remains low, it will increase under the new administration," the rating agency added.

The rating agency said the recovery for U.S. corporates "looks much as we expected a few months ago," with tech, telecom, healthcare and homebuilders on a "much quicker and easier path to recovery," though the travel and leisure industries remain under pressure.

"Mergers and acquisitions will likely be a critical component of the response to secular pressures, with companies seeking to acquire revenue streams and cut costs," said David Tesher, S&P Global Ratings head of Credit Research for North America. "We expect continued consolidation in depressed sectors such as energy, as operators look to gain scale under difficult operating conditions."

High leverage remains the biggest risk to credit conditions, according to the rating agency, as soaring debt could lead to more defaults.