MW Here's how stock-market investors can tune out Harris-Trump election noise
By William Watts
Election results unlikely to change long-term fundamentals: Raymond James Investment Management
Wall Street makes trading elections sound as easy as falling off a log: just invest in the stocks or sectors that are sure to benefit most under the proposed policies of one presidential candidate or the other and profits are sure to follow. Reality seems to often disappoint.
There may be no better example than the relative performance of traditional energy stocks versus green energy stocks under both former President Donald Trump and President Joe Biden. As Wall Street told it, fossil-fuel stocks were set to soar under Trump with green energy sure to languish. Instead, the S&P 500 energy sector saw a nearly 40% drop over the course of Trump's term, while the S&P Global Clean Energy Index rose more than 275%, according to FactSet.
Under Biden, green energy was sure to continue its winning ways. Wrong again. The S&P 500 energy sector has rallied 110% from the beginning of his term through mid-October while the clean-energy index dropped 57%.
It goes to show how markets and the economy can easily defy expectations built around a candidate's policy proposals or rhetoric. It's reflected starkly in the chart below from Matt Orton, chief market strategist at Raymond James Investment Management.
This year has seen an intense focus on the so-called "Trump trade", which appears to have taken hold as betting markets show a rising probability of a return to the White House by the Republican nominee even as nationwide and battleground-state polls show a race that remains too close to call. Financial and energy stocks-again-are expected to be favored in a Trump victory, while prognosticators have touted healthcare, green energy-again-and the technology sector as likely winners in the event of a victory by Vice President Kamala Harris, the Democratic nominee.
Treasury yields and the U.S. dollar have also strengthened, driven at least in part by fears a Trump administration would expand an already eye-watering fiscal deficit more than a Harris administration, which isn't expected to be parsimonious in its own right either.
Orton, in an interview, said the basket approach appears particularly questionable in 2024. "This has been a fairly light policy election and more one of personality and just really big-picture, high-level ideas," he said.
Meanwhile, control of Congress is also up for grabs which makes it even more difficult to just choose a basket of stocks, said Orton, who has recommended investors look to long-term, "bipartisan" investing themes that should prove relatively immune to political swings.
Beyond the dubious exercise of prognosticating how a particular candidate's stance will translate into actual policy, there's also the potential for political reality to completely rip up the playbook.
Investors banking on a Trump victory to spell the end of the Biden-era bashing of "greedflation" and price gouging, for example, should consider how he might react to a resurgence in inflation alongside historically high corporate profits and profit margins.
"A Trump 'sweep' is generally seen as good for the equity market," said Albert Edwards, global strategist at Société Générale in an Oct. 16 note. "A big surprise for investors would be if political scapegoating were to see him go after the large- and megacap companies' abnormally high profit margins. Something certainly must give!"
Government budget worries could also make themselves felt in a way that overrides other policy-based expectations.
Dow component UnitedHealth Group Inc. $(UNH)$ stumbled hard in mid-October after Medicare payments disappointed. As Tom Essaye, founder of Sevens Report Research, observed in a note at the time: "This is notable because the Medicare revenue weakness underscores the reality that starting in 2025, regardless of who is president, the U.S. will have to start to make some tough fiscal decisions given ballooning debt and deficits...Companies that rely on the government for much of their revenue could face headwinds."
Orton at Raymond James contends overall stock-market fundamentals are sound. He argues that stocks set to benefit from three trends -a worldwide rise in military spending, reshoring and infrastructure, and the growth of artificial intelligence-should do well regardless of who sits in the Oval Office come January.
When it comes to the market overall, he counsels taking the long view and looking well past any election-related ructions. The S&P 500 SPX enters election week up more than 20% for the year to date and just 2.3% off its all-time high finish set on Oct. 18. The Dow Jones Industrial Average DJIA is up 11.6% so far this year, while the tech-heavy Nasdaq Composite COMP has rallied 21.5%.
"I think any pullback induced by the election provides a buying opportunity for the market overall because the election results are not going to change the strong fundamental base upon which market gains we've had this year are based," Orton said.
-Michael DeStefano contributed.
-William Watts
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(END) Dow Jones Newswires
November 02, 2024 10:05 ET (14:05 GMT)
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