As we approach the 2020 election, you must be wondering: how will the elected candidate impact the stock market and certain key stocks in particular?
Experience tells us that it is a challenge to predict anything concrete about the impact of the upcoming election on specific stocks, and the specific stocks that thrive or struggle are often counterintuitive. For example, traders feared that the Obama Administration’s focus on gun control would hurt firearm stocks or that President Trump’s more “status quo” plan for healthcare would benefit medical stocks, at least relative to Hillary Clinton’s more dramatic proposal to overhaul the nation’s entire healthcare system.
In both of those cases, the “logical” outcome was wrong: firearm manufacturers crushed the broader stock market throughout Obama’s presidency, whereas the healthcare sector is essentially performing in-line with the broader market since Election Day 2016:
Generally speaking, in the is typically higher in election years compared to non-election years as traders weigh the ever-fluctuating polls and try to predict the political impact on their portfolios. According to JP Morgan, markets tend to react well to the election of a Republican president in the immediate aftermath of election day.
Why is this the case? Generally speaking, Republican party policies are broadly thought to be more market friendly, though that reaction isn’t guaranteed; we don’t have to look back too far to see the stock market’s short-lived overnight dive as traders came to terms with President Trump’s surprise election night victory in 2016.
When it comes to this year’s election, economic volatility from policies will be most dramatic at a sector and industry level, rather than for the broad economy. Heading into Election Night 2020, there are several sectors that may see dramatic moves based on the results:
1) Healthcare: With presumptive Democratic nominee Joe Biden incorporating elements of former rival Bernie Sanders’ more substantial health care reform proposal (though crucially, not endorsing a full “Medicare for All” style overhaul) , the healthcare sector is poised for large policy-related moves. Despite his bluster to the contrary, President Trump has done little to further regulate big pharma firms in particular, so stocks like Johnson & Johnson (NYSE:), Roche (OTC:), Novartis (NYSE:), Merck (NYSE:), Abbott Laboratories (NYSE:) and Amgen (NASDAQ:) could benefit from a potential reelection of Donald Trump.
2) Energy: Democrats remain largely unified around the risks posed by climate change, and are therefore more likely to enact regulations on the fossil fuel industry and policies that promote clean energy adoption. As with Big Pharma names, another Trump victory could boost traditional energy conglomerates like Exxon Mobil (NYSE:), Royal Dutch Shell (NYSE:), Chevron (NYSE:), Total (NYSE:) and BP (NYSE:).
3) Technology: Politicians on both sides of the aisle are growing increasingly antagonistic to the mega-cap technology firms that continue gobble up market share and embed themselves more deeply into every aspect of modern society. It’s difficult to handicap which party would be more likely to pursue aggressive antitrust actions against companies like Apple (NASDAQ:), Amazon (NASDAQ:), Facebook (NASDAQ:), Alphabet (NASDAQ:), or Netflix (NASDAQ:), but either way, traders of all stripes will be watching this space closely. For what it’s worth, AAPL, AMZN, and NFLX are all up by more than 300% since the 2016 election, so bulls will definitely be hoping for more of the same in the coming four years!
4) Media: In another example of a counterintuitive outcome, media stocks have thrived despite (most) being labeled “fake news” by the current President. Stocks like AT&T (NYSE:), Twenty-First Century Fox (NASDAQ:), CBS (NASDAQ:) and Comcast (NASDAQ:) have all benefited from the population focusing more on current developments. These types of companies may struggle if Joe Biden wins and we see a “quieter” Commander-in-Chief over the next four years.
5) Marijuana: Relative to some of the more liberal Democratic candidates, Biden is seemingly lukewarm toward recreational marijuana, but the prospects of full legalization are nonetheless better under Biden than Trump, especially if the House of Representatives and/or Senate is also under Democratic control. In that case, stocks like Canopy Growth (NYSE:), GW Pharmaceuticals (OTC:), Curaleaf (OTC:), Cronos Group (NASDAQ:), and Aurora Cannabis (NYSE:) could catch a bid, though the risk of a “buy the rumor, sell the news” event on either the election or potential signing of a federal legalization bill is possible.
As we noted, none of these situations are guaranteed to play out as expected, but policy risks are clearly elevated in both directions for the stocks highlighted above. While the drama of a presidential election is almost tailor-made for market volatility and trader overreactions, readers should ultimately watch how specific policies will impact certain sectors and companies to identify the strongest trading opportunities.