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The stock market is marching to its own drummer. And neither Trump nor Biden is setting the beat.
President Trump’s policies toward business and Joe Biden’s platform on taxes, regulation, and the like make it pretty clear that some sectors would fare better over the next four years if Trump is reelected, and others would prosper more under the former Vice President. So you’d think the prices of stocks in Trump-friendly industries would surge when he pulls closer to Biden in the polls and sell off when he falls farther behind. By the same token, it would make sense that as Biden’s lead widens, as it has recently, shares in the corridors of the economy his proposals favor would follow the same pattern.
Of course, the trajectory of stocks in different industries are influenced by many forces besides the shifting odds of a Trump or Biden presidency. Among them are the Fed’s commitment to ultralow rates, the careening course of crude oil prices, and the mounting trade war with China. But according to Tom Hainlin, national investment strategist at U.S. Bank, the two paramount drivers of both the overall market and shares in different industries, are the ebb and flow of the pandemic and the probability that Congress will pass a new stimulus. “The markets are carefully watching the progress on a vaccine, that’s the key to fully reopening the economy, and the chances of a stimulus package as a bridge to get us there,” says Hainlin.
Still, the two candidates pledge to treat the same sectors in such totally different ways, that it’s worth exploring whether their fluctuating fortunes in the polls is part of what’s pushing and pulling stock prices. To find out, I looked at what’s been happening in six industries: three that should welcome a Trump presidency and three that would benefit from Biden’s proposals.
The three Trump-leaning categories are energy, health care, and technology. In energy, Trump’s been a champion of fracking and new pipelines, while Biden backs a climate-friendly agenda that could hurt oil companies. In health care, Trump’s changes in how insurers are reimbursed for drug sales looks like less burdensome than Biden’s stance for imposing price controls. And Biden’s plans for a broader public option could shrink the share of health care dollars going to private providers from insurers to HMOs. Tech is a close 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, since Democrats regularly blast Big Tech for exerting and abusing their supposed monopoly power.
Leading the better-under-Biden roster are industrials and materials. Those sectors depend heavily on exports, and they’re suffering from the tariffs our trading partners levy in retaliation for the duties imposed by Trump. Biden is a globalist who supported the TPP and NAFTA. His policies would boost trade and lift growth for nations that buy our products, expanding overseas markets for U.S. steel, aluminum, and cars. The Biden green agenda would marshal huge subsidies for renewables such as solar, wind, and breakthrough battery technologies.
Since early April, the Trump vs. Biden polls displayed four cycles where Biden’s lead has significantly shrunk or expanded. We’ll call those episodes the Four Waves. In Wave One, running from Friday, April 3, to Friday, May 8, Biden’s lead shrank by 1.5 points to 4.4%. During Wave Two, from May 8 to June 19, Biden gained 5.1 points. In Wave Three, from June 19 to Sept. 18, Trump rebounded by 3.3 points, lowering Biden’s lead to 6.2 points, 49.3% to 43.1%. In Wave Four, from Sept. 18 to Oct. 14, Biden roared back, grabbing 3 points and establishing his current big lead of 9.2 points, 51.4% to 42.2%. Did stock prices in these six industries––all that could have plenty riding on the outcome of the election––follow the candidates’ zigzagging odds?
We’ll use the S&P industry indexes to measure the changes in five sectors and the Nasdaq Clean Edge Clean Energy benchmark for renewables. First up is the trio Trump should benefit. In tech, prices rose 15% in Wave One as Trump’s numbers improved. That seems to make sense. But in Wave Two, Trump fell far behind, and the sector did even better, waxing by 22%. Same story in the most recent four weeks of Wave Four: Trump slipped badly, and tech jumped 10.8%. The conclusion: Tech did even better when its best candidate’s poll numbers did the worst. Tech investors are yawning about the election and rejoicing over the 5G and other next-gen products they’re betting will drive today’s immense valuations to new heights.
Health care barely budged when Trump took his biggest hit in Wave Two, edging up 1%. When the gap expanded to its widest level in Wave Four, the index rose 2.3%. So the industry doesn’t seem the least bothered by the increasing probability of a Biden win.
Energy is the only sector where prices track Trump’s ups and downs. When the President’s numbers improved in Wave One, the S&P 500 Energy index rose 21%, and when his deficit expanded in Wave Four, the oil-gas-and-pipeline complex retreated 8%.
Let’s move to sectors that should be getting a Biden bump, at least in theory. When Biden got his biggest boost in Wave Two, materials went the other way, falling 6%. When the former Veep’s lead went from strong to overwhelming in Wave Four, materials rose just 1%.
As for industrials, over the two periods where the Biden lead shrank, prices increased 12% and 14%, and the two times he slipped, shares advanced 9% and 27%. Put simply, investors piling into industrials reckoned they’d thrive with either Trump or Biden in the White House.
Most mystifying of all is the reaction in green stocks. The Nasdaq Clean Edge index jumped 28% and 42%, respectively, when Trump made his best showings in Waves One and Three. Nothing against Biden: Green also gained 22% when he leaped 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 when Trump pulls closer. Of the three sectors that got a boost under the Trump presidency and risk losing that lift if he loses, only energy even remotely mirrors Trump’s prospects for reelection.
Stocks in what should be the “election-sensitive” sectors seem oblivious to which candidate wins. The narrative extends to the overall market. Biden’s proposal to raise the corporate income and capital gains rates appears to be a prescription for lowering future profits and compressing P/E multiples, how much folks and funds will pay for each dollar of those earnings. But that’s not the message the S&P 500 is sending. When Biden’s lead rose by 5.1 points in Wave Two, the S&P gained 5.7% and added another 5% in Wave Four when the chasm expanded to today’s 9.2 points.
Hainlin notes that “it isn’t unusual at all” in the run-up to a presidential election for the upfront and tangible forces that can benefit or damage businesses right now to outweigh the candidates’ positions in the minds of investors. And what’s uppermost in the minds of investors is the daily news on the the pandemic and wrangling over a new stimulus.
History also tells us that what’s proposed during a campaign often isn’t enacted. “Even if you get a Democratic sweep, it will take a long time to formulate policy and pass something,” says Hainlin. “And neither party is monolithic. For example, both Democrats and Republicans want to bring down drug prices, though in different way.” A good example of why the pandemic and stimulus are exerting a far stronger pull than possible future shifts in policy, he says, is energy. With crude oil in plentiful supply, it’s tepid global demand that’s holding prices in the $40 a barrel range. “A big Democratic victory would mean more alternative energy,” says Hainlin. “But what investors are looking for right now is the progress towards reopening that would lift demand and push up prices.”
The market is in such a party mood, so high on momentum, that it doesn’t seem to care who gets elected President. It’s been a bash. The looming policies investors are ignoring could bring a long hangover.
More must-read finance coverage from Fortune:
- What Wall Street needs from the 2020 election
- How J.P. Morgan is proceeding with extreme caution—and still making plenty of money
- “A tale of two Americas”: How the pandemic is widening the financial health gap
- A disputed election could cost the U.S. its “AAA” credit rating
- As earnings season kicks off, only 48% of companies have resumed giving investors guidance