Stocks in “election sensitive” sectors don't seem to know which candidate wins. Why?

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The stock exchange is marching to its own drummer. And neither Trump nor Biden set the pace.

President Trump's corporate policy and Joe Biden's platform on taxes, regulation, and the like make it pretty clear that if Trump were re-elected, some sectors would do better and others would do better under the former Vice President, over the next four years would have. So, you'd think that Trump-friendly industries would rise if he got closer to Biden in the polls and sell if he kept falling back. For the same reason, it would make sense for Biden's lead to expand, as it recently didStocks in the corridors of the economy that support his proposals would follow the same pattern.

Of course, in addition to the changing opportunities of a Trump or Biden presidency, the performance of stocks in various industries is influenced by many forces. Among them are those The Fed's commitment to ultra-low rates, the rapid development of crude oil prices and the increasing trade war with China. According to Tom Hainlin, national investment strategist at the US bank, the two main drivers of both the overall market and shares in various industries are the ebb and flow of the pandemic and the likelihood that Congress will receive a new stimulus. "Markets are closely watching progress on a vaccine that is key to fully reopening the economy and the chances of a stimulus package as a bridge to get us there," said Hainlin.

Still, the two candidates commit to treating the same sectors so differently that it is worth examining whether their volatile wealth in the polls is part of what is pushing and pulling stock prices. To find out, I looked at what was happening in six industries: three that should welcome a Trump presidency and three that would benefit from Biden's proposals.

The three Trump categories are energy, healthcare, and technology. In the energy space, Trump has been an advocate of fracking and new pipelines, while Biden supports a climate-friendly agenda that could harm oil companies. In healthcare, Trump's changes to insurers' reimbursement of drug sales appear to be less onerous than Biden's stance on imposing price controls. And Biden's plans for a broader public option could reduce the proportion of health dollars that go to private providers from insurers to HMOs. Tech is a close call. Both candidates talk about hitting social media giants with stricter regulation, but it's likely that a Biden government would take much more aggressive antitrust action as Democrats routinely beat up Big Tech for the exercise and abuse of their supposed monopoly power.

At the top of the Biden list are industrial and material products. These sectors depend heavily on exports and suffer from the tariffs our trading partners impose in retaliation for tariffs imposed by Trump. Biden is a globalist who supports TPP and NAFTA. His policies would boost trade and growth in the countries that buy our products and expand overseas markets for US steel, aluminum and automobiles. Biden's green agenda would provide huge subsidies for renewable energy such as solar, wind and breakthrough battery technologies.

Since the beginning of April, Trump's versus Biden polls showed four cycles in which Biden's lead was significantly reduced or expanded. We will call these episodes the four waves. In Wave One, which ran from Friday, April 3 through Friday, May 8, Biden's lead shrank 1.5 points to 4.4%. During the second wave, from May 8th to June 19th, Biden won 5.1 points. In wave three, Trump recovered 3.3 points from June 19 to September 18, reducing Biden's lead to 6.2 points, 49.3% to 43.1%. In wave 4, from September 18 to October 14, Biden roared back, scooped 3 points and built his current big lead of 9.2 points, 51.4% to 42.2%. Did the stock prices in these six industries – all that might depend on the election results – match the candidates' zigzag chances of winning?

We will use the S&P industry indices to measure changes in five sectors and the Nasdaq Clean Edge Clean Energy Renewable Energy Benchmark. First up is the trio Trump. On the tech side, prices in Wave One rose 15% as Trump's numbers improved. That seems to make sense. But in wave two, Trump fell way behind, and the sector did even better, growing 22%. Same story over the past four weeks of Wave Four: Trump slipped badly and technology soared 10.8%. The bottom line: Tech did even better when its best candidate's poll ratings came off the worst. Tech investors yawning at the choice and are excited about the 5G and other next-generation products they're betting on, which will take today's immense reviews to a new level.

Healthcare barely moved when Trump scored his biggest hit in wave two, gaining 1%. When the gap widened to its widest level in wave 4, the index rose 2.3%. So the industry doesn't seem the least affected by the increasing likelihood of a Biden win.

Energy is the only sector where prices are tracking Trump's ups and downs. As the president's numbers improved in wave 1, the S&P 500 Energy Index rose 21%, and when its deficit increased in wave 4, the oil-gas pipeline complex declined 8%.

Let's move on to sectors that should at least theoretically get a Biden bump. When Biden got its biggest boost in wave two, materials were going the other direction, falling 6%. When the former Veep's lead rose from strong to overwhelming in wave 4, materials only rose 1%.

In industrial companies, prices rose 12% and 14% over the two periods Biden's lead shrank, and stocks rose 9% and 27% the two times it slipped. Put simply, investors who looked at industrials expected them to thrive in the White House with either Trump or Biden.

Most mysteriously, the reaction to green stocks is. The Nasdaq Clean Edge Index rose 28% and 42%, respectively, when Trump got his best results in Waves One and Three. Nothing against Biden: Green also gained 22% as he jumped to his widest lead in wave four.

The takeaway: Stocks that should benefit from a Biden presidency do no better when his polls improve than as Trump gets closer. Of the three sectors that have gotten a boost under the Trump presidency and run the risk of losing that boom if it loses, only energy reflects Trump's prospects for re-election, even remotely.

Stocks in the “election sensitive” sectors don't seem to know which candidate wins. The narrative extends to the overall market. Biden's proposal to increase corporate income and capital gains rates seems like a recipe for lowering future earnings and compressing the P / E multiple of how much people and funds will pay for every dollar of that income. However, this is not the message the S&P 500 sends. As Biden's lead rose 5.1 points in wave 2, the S&P rose 5.7% and added another 5% in wave four as the gap widened to today's 9.2 points.

Hainlin notes that "in the run-up to a presidential election, it is not at all uncommon" that the direct and tangible forces that companies currently use or can harm outweigh the positions of candidates in the minds of investors. And what's most important to investors is the daily news of the pandemic and the battle over a new incentive.

History tells us that too What is proposed during a campaign is often not implemented. "Even if you make a democratic decision, it will take a long time to formulate a policy and adopt something," says Hainlin. “And no party is monolithic. For example, both Democrats and Republicans want to lower drug prices in different ways. “A good example of why the pandemic and incentive are far more attractive than possible future policy changes, he says, is energy. With crude oil abundant, lukewarm global demand keeps prices in the $ 40 per barrel region. "A great democratic victory would mean more alternative energy," says Hainlin. "What investors are looking for right now is the reopening progress that would fuel demand and drive prices up."

The market is in such a party mood that is so dynamic that it doesn't seem to matter who is elected president. It was a bash. The emerging guidelines that investors are ignoring could cause a long hangover.

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