Charts Traders Will Be Nervously Refreshing on Election Night

For investors, the answers to questions about who won on election night will be more complicated than just “Republicans” or “Democrats.”

If Donald Trump keeps control of the White House for the next four years, he will likely continue the trade war with China and do his best to promote U.S. oil production, for example. If Joe Biden becomes president and Democrats gain majorities in both the House of Representatives and Senate, such a “blue wave” may be a boon to construction spending and the marijuana industry.

Already, the slightest fluctuations in the polls have reverberated in the stock market, especially after Biden took a clear lead in June. Starting the night of Nov. 3 — and possibly stretching over many more days as votes are tallied — traders will be refreshing certain charts over and over to figure out what’s coming next.

Here things they’ll be watching:

China Connections

If Trump loses, stocks with high exposure to the Chinese economy could end up as winners, according to Shawn Snyder, head of investment strategy at Citi Personal Wealth Management.

“There’s a perception the pressure will remain regardless, but simply taking away the prospect of increased trade tensions would benefit Chinese equities,” said Snyder.

So some investors will be monitoring a Goldman Sachs Group Inc. basket of stocks in the Russell 1000 that tracks companies with the highest sales exposure to China, including Nike Inc., Nvidia Corp., Apple Inc. and MGM Resorts International.

In a second term, Trump might penalize Beijing over the Covid-19 pandemic through trade policy, according to Chris Senyek, Wolfe Research’s chief investment strategist. For that scenario, he would recommend investors underweight areas like metals and mining, autos, agricultural exporters, capital goods, and semiconductors and equipment.

Yuan Moves

Mark McCormick, global head of currency strategy at TD Securities, said in an interview on Bloomberg Television and Radio that a Trump loss could mean a return to a more orthodox strategy on foreign policy. He said markets have been pricing in a “blue wave,” which would be “positive for global risk.”

According to Alan Ruskin, chief international strategist at Deutsche Bank AG, a Biden win alone — without a Senate flip — would itself be enough to lead to a weaker dollar against the Chinese yuan.

Domestic Shifts

Other Goldman Sachs baskets are tracking possible winners and losers under a Democratic government. Biden’s proposals to expand Obamacare and boost investments in infrastructure and renewable energy would likely bolster companies such as Caterpillar Inc., Tesla Inc. and HCA Healthcare Inc. Meanwhile, his party’s plans to tax the wealthy, curb drug prices and cut defense spending might hurt firms like JPMorgan Chase & Co., Eli Lilly & Co. and Lockheed Martin Corp.

Trump Trade Redux

In the weeks heading into the 2016 election, investors were selling the peso and buying the ruble based on Trump’s attacks on Mexico and praise for Russian President Vladimir Putin. This time around, the “Trump Trade” has reversed.

A Biden win would mean trouble for Moscow, including possible sanctions for meddling in U.S. politics and various foreign aggressions. And he’s promised to work constructively with Mexico and other nations in Central and South America.

Bundle of Energy

As Biden’s odds of being elected rose, shares in renewable-energy firms expected to benefit from his proposed green investments surged. NextEra Energy Inc., one of the largest renewable suppliers, has risen more than 7% this month and hit an all-time high on Oct. 12. Funds tracking clean energy plays have gained, too, including the Invesco Solar ETF (ticker TAN), the iShares Global Clean Energy ETF (ICLN) and Global X YieldCo & Renewable Energy Income ETF (YLCO).

Trump supports the fossil fuel industry through relaxed regulatory burdens and expanded offshore oil and gas drilling. Biden’s plan calls for banning new oil and gas permits on public lands and water. So pure plays on big oil, like Exxon Mobil Corp. and Chevron Corp., are reasonable election gauges.

“This is one of the areas where the two administrations have one of the biggest divergences,” said Linda Zhang, chief executive officer and founder of Purview Investments. “They are just day and night.”

Private Prisons

The day after Trump’s surprise 2016 election, shares of CoreCivic Inc. (formerly known as Corrections Corporation of America) surged more than 40%. The GEO Group Inc. gained more than 20%. The two are among the biggest players in the for-profit prison business. Shares of both merit watching, according to Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, since they “could definitely move on a Trump win.”

In the Weeds

During a debate with Vice President Mike Pence in early October, Democratic vice presidential nominee Senator Kamala Harris offered a promise to decriminalize marijuana. Shares of ETFMG Alternative Harvest ETF (ticker MJ), Advisorshares Pure Cannabis ETF (YOLO), Cambria Cannabis ETF (TOKE) and the Global X Cannabis ETF (POTX) promptly shot up.

Marijuana legalization is also on the ballot in four states this November and legalization in a place like New Jersey may encourage other legislatures to follow suit. So pot stocks can be a proxy for broader election results, says Jessica Rabe, co-founder at DataTrek Research.

— With assistance by Claire Ballentine, Vivien Lou Chen, and Aine Quinn

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