Stocks in “election sensitive” sectors don’t seem to know which candidate will win. Why?

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The stock market is walking towards its own beater. And neither Trump nor Biden are setting the pace.

President Trump’s policies towards business and Joe Biden’s platform on taxes, regulations, etc. make it pretty clear that some sectors would fare better over the next four years if Trump were re-elected, and others would thrive more under the former vice president. So you think stock prices in Trump-friendly industries would rise when he gets closer to Biden in the polls and sell when he falls behind. Likewise, it would make sense that as Biden’s lead broadened, as he did recently, the actions in the corridors of the economy that its proposals favor would follow the same pattern.

Of course, the trajectory of stocks in different industries is influenced by many forces in addition to the changing odds of a Trump or Biden presidency. Among them are the The Fed’s commitment to ultra-low rates, the evolution of crude oil prices and the growing trade war with China. But according to Tom Hainlin, national investment strategist at the US Bank, the two main drivers of the overall market and shares in different industries are the ebb and flow of the pandemic and the likelihood of Congress adopting a new stimulus. “Markets are closely monitoring progress on a vaccine, which is key to fully reopening the economy, and the chances of a stimulus package as a bridge to get us there,” Hainlin said.

Still, the two candidates are committed to treating the same sectors in such totally different ways that it is worth considering whether the fluctuation of their fortunes in the polls is part of what pushes and pulls stock prices. To find out, I looked at what is happening in six areas: three that are expected to host a Trump presidency and three that would benefit from Biden’s proposals.

The three categories that Trump leans on are energy, healthcare, and technology. On energy, Trump has been a champion of fracking and new pipelines, while Biden supports a climate-friendly agenda that could hurt oil companies. In healthcare, Trump’s changes in the way insurers are reimbursed for drug sales seem less onerous than Biden’s stance to impose price controls. And Biden’s plans for a broader public option could reduce the share of healthcare dollars going to private providers, from insurers to HMOs. Technology is a proximity call. Both candidates talk about hitting social media giants with tighter regulation, but it’s likely that a Biden administration would take much more aggressive antitrust action, as Democrats routinely criticize Big Tech for exercising and abusing it. their so-called monopoly power.

Industrials and materials are at the top of Biden’s best list. These sectors depend heavily on exports and suffer from tariffs that our trading partners impose in retaliation for tariffs imposed by Trump. Biden is a globalist who supported the TPP and NAFTA. Its policies would stimulate trade and stimulate the growth of the countries that buy our products, expanding foreign markets for American steel, aluminum and cars. Biden’s green program would bring together huge grants for renewable energy such as solar, wind and breakthrough battery technologies.

Since early April, the Trump vs. Biden polls have shown four cycles in which Biden’s lead has shrunk or increased significantly. We will call these episodes the four waves. In the first wave, from Friday April 3 to Friday May 8, Biden’s lead fell 1.5 points to 4.4%. In the second wave, from May 8 to June 19, Biden gained 5.1 points. In the third wave, from June 19 to September 18, Trump rebounded 3.3 points, lowering Biden’s lead to 6.2 points, 49.3% to 43.1%. In the fourth wave, from Sept. 18 to Oct. 14, Biden hit back, grabbing 3 points and establishing his current big lead of 9.2 points, 51.4% to 42.2%. Have stock prices in these six sectors – anything that could matter a lot depending on the outcome of the election – followed the zigzagging ratings of the candidates?

We will use the S&P sector indices to measure changes in five sectors and the Nasdaq Clean Edge Clean Energy benchmark for renewable energy. First, the trio that Trump should benefit from. In tech, prices rose 15% in the first wave as Trump’s numbers improved. It seems logical. But in the second wave, Trump fell far behind and the industry did even better, growing 22%. Same story in the last four weeks of Wave Four: Trump slipped badly and technology jumped 10.8%. The Bottom Line: Tech did even better when its top candidate’s poll results did the worst. Tech investors are yawning about the election, and cheering for 5G and the other next-gen products they are betting will take today’s huge valuations to new heights.

Health care barely budged when Trump took his biggest hit in Wave 2, up 1%. When the spread widened to its largest level in Wave 4, the index rose 2.3%. So the industry doesn’t seem the least bothered by the growing likelihood of winning over Biden.

Energy is the only sector where prices follow Trump’s ups and downs. When the president’s numbers improved in wave one, the S&P 500 Energy index rose 21 percent, and when its deficit widened in wave four, the oil, gas and pipeline complex fell 8 percent .

Let’s move on to areas that should receive a bonus from Biden, at least in theory. When Biden got his biggest boost in Wave 2, materials went the other way, down 6%. When Veep’s old lead went from strong to overwhelming in Wave 4, materials only rose 1%.

On the industry side, in the two periods that Biden’s lead retreated, prices rose 12% and 14%, and the two times he slipped, stocks rose 9% and 27%. . Simply put, investors crammed into industrialists felt they would prosper with Trump or Biden in the White House.

Most mystifying of all is the reaction of green stocks. The Nasdaq Clean Edge Index jumped 28% and 42%, respectively, when Trump performed best in Waves One and Three. Nothing Against Biden: Green also gained 22% when he jumped to his biggest lead in Wave Four.

Bottom line: Stocks that should benefit from a Biden presidency don’t do better when his polls improve than when Trump gets closer. Of the three sectors that received a boost under Trump’s presidency and that stand to lose that lift if he loses, only energy even remotely reflects Trump’s re-election prospects.

Stocks in what should be “election sensitive” sectors seem to ignore which candidate wins. The story spans the entire market. Biden’s proposal to raise corporate income and capital gains rates appears to be a prescription to reduce future profits and compress P / E multiples, how much people and funds will pay for every dollar of those profits. But that’s not the message the S&P 500 sends. When Biden’s lead increased 5.1 points in the second wave, the S&P gained 5.7% and added another 5% in the fourth wave as the chasm widened to 9.2 points. today.

Hainlin notes that “this is not at all unusual” with the approach of a presidential election for the direct, tangible forces that can benefit or harm businesses at this time to prevail over the positions of the candidates in the mind of investors. And what is most important in the minds of investors is the daily news about the pandemic and the arguments over a new stimulus.

History also tells us that what is offered during a campaign is often not adopted. “Even if you get a Democratic sweep, it will take a long time to formulate policy and pass something,” Hainlin says. “And neither party is monolithic. For example, Democrats and Republicans want to lower drug prices, but in different ways. A good example of why the pandemic and the stimulus have a much stronger pull than possible future policy changes, he says, is energy. With a plentiful supply of crude oil, it’s lukewarm global demand that keeps prices around $ 40 a barrel. “A big Democratic victory would mean more alternative energy,” Hainlin says. “But what investors are looking for right now is progress towards a reopening that would increase demand and push prices up.”

The market is in such a festive mood, so vibrant, that it doesn’t seem to care who gets elected president. It is a party. Looming policies that investors ignore could lead to a long hangover.

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