What the Election Means to Markets (Updated)
Election Day is just two weeks from this Tuesday, so you’re probably getting the question:
“What does the election mean for the markets?”
Specifically, we want to address, in plain English, what a Clinton or Trump win would mean for:
- The major asset classes: Stocks, Treasuries, Gold, Oil, the US Dollar and
- Which stock sectors will be winners or losers
We’re producing this research now because if you’re like advisors who subscribe to The Sevens Report, you’re already getting asked questions about the election, and we want to make sure our paid subscribers have a clear, confident answer if a client or prospect asks about the potential market consequences of a Clinton or Trump victory.
We’re addressing this for two specific reasons.
- I haven’t found a good, comprehensive, Plain-English analysis of the election that focuses on the specific implications for all asset classes (not just stocks) and that singles out which stocks or sectors will rise or fall depending on the outcome.
- The election is obviously a popular topic, and advisors will be talking about it with current clients and prospects. We want to make sure our paid subscribers have the talking points they need to turn those conversations into more assets and more clients
– because the opportunity will be there for the informed advisor!
That’s why we made sure our election analysis covered all asset classes (not just stocks), because who wins will affect bond prices, oil prices, gold prices and the US dollar.
The election will also produce opportunities in specific stock sectors to outperform into year end, and we want our subscribers well versed in those potential opportunities, so when a prospect or clients asks – they have a specific answer!
As we enter what we believe will be a volatile fourth quarter, we will be dedicated to making sure our subscribers know what’s really driving markets, because we firmly believe volatility is an opportunity to strengthen your relationships with current clients and impress
prospects who are currently with other firms.
We all know that successful advisors grow their books by connecting with high net worth clients, and to build trust with those clients you can’t just repeat company “perma-bull” strategies.
That is why we created The Sevens Report, so that advisors can make sure they have an independent analyst that communicates with them daily, by 7 a.m., and quickly identifies the risks and opportunities for:
- Stocks
- Bonds
- Currencies
- Commodities, and
- Interprets what economic data means for the market
The Sevens Report is the daily market cheat sheet our paid subscribers use to keep up on markets, seize opportunities, avoid risks and get more assets.
With a monthly subscription cost less than a single client lunch, we are confident that we offer
the best value in the independent research space.
As a courtesy, we’ve included an excerpt from a recent edition of The Sevens Report that provides a roadmap for the markets given a Trump or Clinton victory.
What the Election Means for Markets
Three Market Winners (Regardless of Who Is Elected)
Infrastructure Stocks: Both candidates will likely expand infrastructure spending. Some names to watch (there isn’t a pure play infrastructure ETF): Restricted for subscribers. IGF is a global infrastructure ETF, but the US makes up less than 1/3 of the ETF, so it’s not a pure play (although still not a bad idea as increased government spending is likely across the globe).
Defense Stocks: Both candidates will likely increase defense spending, at least initially as the push to eradicate ISIS. Obviously given their stated policies it’s more positive for defense names if Trump gets elected, but either way this is a sector that should have a tailwind regardless of the outcome. Our preferred Defense ETF is: Restricted for subscribers.
Gold: Regardless of who wins the outlook from a political and macro standpoint isn’t exactly rosy, so gold will likely catch a mild bid in either case even if it’s nothing more than as a protest vote by investors (neither candidate is exactly wanted by the markets).
Clinton Victory
Macro View:
The market “prefers” a Clinton win solely because it’s more of the same. So, a Clinton victory should be viewed more as “not bad” for stocks rather than “good” (in the short term) compared to the uncertainty of a Trump victory.
Market Reaction: Stocks: A mild relief rally (relief there were no surprises) but nothing particularly bullish. Bonds: Also a mild relief rally. Oil/Gold: Oil little changed, gold likely modestly higher. US dollar: Little changed.
Winners: Hospitals (Thesis: No Obamacare repeal or replacement, ETF: Restricted for subscribers), gun manufacturers (Thesis: Potential restriction on certain firearm sales. No ETF, best stock,
Restricted for subscribers). Alternative energy (Thesis: Continuation of investment in alternative energy programs. ETFs:
Restricted for subscribers.
Losers: Biotech/Pharma (fears of regulation/price ceilings), energy & coal (Thesis: Increased environmental regulation reducing coal and fossil fuel production, ETFs: Restricted for subscribers. Private prison stocks (Thesis: Clinton said she wants them basically out of business at the debate. Stocks:
Restricted for subscribers). Notable: Natural gas may be the exception here and worth a look on a dip as natural gas is the favorite fossil fuel of the alternative energy crowd.
Trump Victory
Macro View: The level of uncertainty regarding his policies will be very high, and that will elicit a “sell first, ask questions later” immediate reaction from stocks. But given the period between Election Day and Inauguration is usually a quiet one for the President Elect, I don’t think a Trump victory will, by itself, cause a material selloff into year end.
Market Reaction:
Stocks: Likely a mild-to-modest selloff, but not a bearish game changer. Bonds: Treasuries lower near term but not a bearish game changer. Dollar: Lower as markets price in potentially contentious trade deals. Gold/Oil: Both up (potentially materially) on uncertainty (the former more so than the latter).
Winners: Coal (Thesis: Reduced regulation on coal production and sales. ETF: Restricted for subscribers), energy (Thesis: Relaxed regulatory environment. ETF: Restricted for subscribers), pharma/biotech (Thesis: No risk of price controls or ceilings. ETF:
Restricted for subscribers), banks (Thesis: Potentially higher rates, rollback of certain Dodd-Frank regulations. ETF: Restricted for subscribers).
Losers: Hospitals (Thesis: Potential healthcare law changes. ETF: Restricted for subscribers). Alternative energy (Thesis: less funding for programs. ETFs: Restricted for subscribers).
The Worst Election Outcome for Stocks
Given the large shift in the polling towards Clinton over the past few weeks, there are two new threats to the market from the election that I want to cover.
First, the Democrats sweep and win the presidency, Senate and House.
Second, and more likely, the Democrats win the presidency, Senate and shrink the Republican majority in the House.
Now, to be very clear, calling this a threat to markets has nothing to do with politics. These events aren’t a threat to markets because of the Democrats. Instead it’s because the market generally prefers a divided government that can’t really do anything. One party in full control is the opposite of that desire.
So, turning back to the first scenario where the Democrats sweep, that could be at least a temporary market negative because the government wouldn’t be divided and would likely be very active over the next two years.
The second scenario, where the Democrats win the presidency and Senate would still leave us with a divided government.
But, it would also vastly increase the chances of multiple budget/government shutdown dramas over the next two years. I say that because the Republicans would only be able to use the withdrawal of funding to influence policy (similar to what we saw in ’08 to ’12). And, to that point, current government funding is due to expire December 9th, so if this is the outcome of the election, that date will all of a sudden become more important.
Bottom line, Elections can move markets.
In 2012 the S&P 500 dropped 7%
ahead of and after the election, and if we get a negative surprise this year, a similar decline could easily turn the S&P 500 negative year to date.
If you don’t have a morning report that tells you, in plain English, what the election means for all asset classes, and doesn’t specifically identify sectors and stocks that will rally or decline based on the outcome, then please consider a quarterly subscription to The Sevens Report.
There is no penalty to cancel your subscription, no long-term commitment, and it costs less per month than one client lunch!
If all we do is help you avoid any election related pullback in stocks, or give you a tactical idea that can outperform into year end, it will be well worth the quarterly subscription cost!
With thousands of advisor subscribers from virtually every firm on Wall Street and a 90% initial retention rate, we are very confident we offer the best value in the private research market.
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Best,
Tom
Tom Essaye
Editor, The Sevens Report
