Biden's election odds are rising. Why that could be bad for the stock market leaders.

As Trump remains in hospital and the rumour mill continues as to what condition he is in and when he first was aware of contracting the virus, Biden's lead in the polls widened to 14 points against Trump in the latest NBC News/Wall Street Journal poll.

Up until now, many traders have been careful to position themselves for a clear winner in November either way. However, with Biden building momentum going into the last month, many traders and money managers may now look to position themselves for a Biden victory - and this could be bad news for those tech and growth stocks that have been the clear leaders since the March lows.

Although the market may like Biden in that he comes with a greater likelihood of a larger fiscal stimulus deal, there are considerable fears with regard tighter regulations and a tax regime that is reported to see corporate taxes increased from 21% to 28% and increased taxes on foreign income. Given these, Bank of America see earnings for the S&P 500 falling by 9.2% if these were passed, with technology companies being particularly hard hit.

The three hardest hit sectors according to the BofA report include Communication Services, Information Technology and Consumer Discretionary - all of which are predicted to see earnings fall between 10.5% and 12.5%. These sectors have also been the strongest stock market performers this year and include the FAANG stocks that have led the market since March. The tax on foreign income is potentially a particularly tough pill to swallow for the technology sector as it drives almost 57% of its revenues from outside the US, whilst that figure is just 40% for the S&P 500 overall.

With Biden seemingly closing in on the White House though, the leaders of the stock market could now take a different shape. Many, including Morgan Stanley, have been calling for increasing portfolio allocations to cyclical and value sectors such as energy, financials and materials as opposed to growth and tech given what they see as an improving US economy and a vaccine soon becoming available. A Biden victory and the associated tax implications, could indeed be another catalyst for cyclical outperformance.

Goldman Sachs also see the potential for a shift in momentum in the market given Biden's call to increase the capital-gains tax for top earners which historically have hit recent stock market leaders, according to the bank's research. They don't however see Biden as a negative for the overall market, stating that the greater fiscal spending expected from a Biden victory and the associated increased tax revenues, would "help offset the earnings headwind from higher taxes".

Before investors position themselves on whether Trump is likely to remain in office for another four years, there are a couple of points worth remembering. Firstly, in order for these tax policies to go through, the Democrats would likely have to win control of the Senate as well as the House, whilst hoping economic conditions are healthy enough. Second of all, despite analysis, it is difficult to know how markets will react to election results - one only needs to look back at 2016 to see how the futures sharply sold off on a Trump victory before then rallying the next day and making further all-time highs.

With there now less than a month before Americans head to the polls, only time will now tell whether a change in political leadership could bring with it a change in market leadership...