How investors should prepare for a Clinton victory
As the calendar flips to September, the U.S. presidential election is going to kick into overdrive. GOP contender Donald Trump and Democratic hopeful Hillary Clinton will face off later this month in their first debate, which will surely be an all-out cage match worthy of pay-per-view.
With two months until voters cast their ballots, Wall Street will be closely monitoring the polls and the debate performances for clues about the path of policy come 2017. Both candidates are seen by their political opponents as the reincarnation of pure evil. And both are running on a set of wildly different policies resulting in a “binary” post-election outcome.
For investors, now is the time to start considering what those outcomes could look like. Let’s first examine how a victory by Hillary Clinton would possibly affect different areas of the market. (A follow-up article will look at a Trump victory.)
In a note to clients, Citigroup (C) analysts summarized a Clinton presidency as a positive for consumer discretionary stocks, financials and big tech, but a negative for energy, health care and basic materials.
Consumer stocks would get a lift, in their view, because of a likely focus on jobs and wages early in her first term.
Financials titans like Goldman Sachs (GS) have been big donors to Clinton (witness the chatter about her speech transcripts) despite her stated support for increased regulatory oversight of Wall Street. Yet unlike Trump, who seems to support the reimplementation of the Depression-era Glass-Steagall Act (repealed by Bill Clinton in 1999) that separated riskier investment banks from commercial banks, Hillary Clinton said back in November that she opposed this idea. That’s good news for the likes of Goldman, although reimplementation is part of the Democratic Party’s official platform.
Health insurance companies like UnitedHealth (UNH) would be at risk under a Trump presidency and likely prefer Clinton to win the White House.
Why? Because she plans on extending and increasing the reach of Obamacare, which has pushed millions of Americans to get coverage. The problem is that adverse selection has kept many young, healthy people from signing up, preferring instead to pay the tax penalty thereby hurting profit margins in the health insurance industry. Clinton would likely further increase penalties for individuals who don’t participate, forcing more health premium payers into the system -- and boosting profitability.
But she would be bad news for biotech and pharmaceutical stocks like Mylan (MYL). The company has been in the news for the political blowback it received after raising the price of its popular EpiPen, used to save the lives of patients with severe allergies. Prices have increased more than 400 percent over the last several years, a move Clinton called “outrageous” and demanded a reversal.
She has also outlined a plan to limit drug price increases, requiring pharmaceutical companies to explain the hikes and prove they’re linked to better care and value.
Trump prefers more consumer-focused reforms of the health care system, which likely wouldn’t have as big of an impact on Mylan’s bottom line.
As for energy and materials stocks like ExxonMobil (XOM), Clinton would be a drag. As a believer in global warming with a started preference for renewable energy, she wants to cut U.S. oil consumption by a third. For the likes of aluminum maker Alcoa (AA), the worry is that Clinton would be tempted to enact a carbon tax plan or otherwise regulate carbon emissions from smelting plants.
This would add further pressure to profitability at a time when many materials companies are feeling cutbacks in China’s fixed-asset investment as well as chronic overcapacity in steel, cement and other industries there.
As for stocks generally, LPL Financial believes the recent market calm could reflect confidence in polls suggesting a Clinton victory is the most likely outcome in November. She represents the “status quo” candidate who’s likely to make the fewest changes to current policy.
Next up, a review of the investing dynamics associated with a Trump victory.
