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Clinton Vs. Trump: Which Stock Sectors Potentially Gain or Lose?

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October 5, 2016
Skyline: How could SPX sectors be affected by the presidential election results?

Can stock sectors be red or blue?

It sometimes seems that way. The energy sector, for instance, thrived under President George W. Bush but wilted under President Barack Obama. Health stocks frequently lagged under Bush, but revived under Obama. And sector performance in the coming years could reflect to some extent the winner of the 2016 presidential election and his or her policies.

“Needless to say, the next president could implement big changes with big impacts to sectors and companies,” S&P Capital IQ said in a recent note to investors.

Materials, Industrials Seen Benefiting Under Clinton or Trump

Although it might seem that Hillary Clinton and Donald Trump have nothing in common, that’s not quite true. They share goals in certain policy areas, and it’s arguable that some stock market sectors could react similarly to the policies of either candidate.

Clinton and Trump have both proposed trade policies that are more protectionist than under previous presidents, which could have a negative impact on multinational U.S. companies in agriculture and information technology that depend on easy access to export markets.

Those same protectionist policies could have the opposite effect on companies in the consumer discretionary and materials sectors, as more stringent laws governing trade could protect certain industries in those sectors from foreign competition. For instance, some analysts say steel companies could perform well under Trump if he keeps his campaign promise to take China to the World Trade Organization (WTO) over the nation’s alleged dumping of excess steel into the market. Steel companies fall into the metals and mining subsector of the materials sector.

Both candidates also propose infrastructure spending. More spending on infrastructure could potentially help the materials and industrials sectors, particularly companies in construction and engineering, construction materials, forest products, building products, road and rail, and machinery.

Another industry that might benefit from either Trump or Clinton is aerospace and defense, a subsector of the industrials sector.

“If you’re looking at what sectors could benefit under Trump, certainly defense is at the top of the list,” said Patrick O’Hare, chief market analyst at Briefing.com. “He’s been talking about needing to beef up defense. Clinton has also talked up the need for improving defense due to increasing terrorism, and that feeds into more benefit for companies focusing on cyber security.”

In early September, Trump made a speech proposing to end the so-called “sequester” on defense spending, saying, “We’ll rebuild our military,” according to media reports. But if Democrats re-take the Senate, any attempts to increase military spending could face roadblocks, as Democrats have insisted that any new spending on defense be matched by a rise in other domestic spending as well, something Republicans may oppose.

Financials and Info Tech: Different Policies Could Affect Performance

Another area where there’s some common ground is the financials sector. Clinton and Trump don’t see eye to eye on the Dodd-Frank law that was designed to help assess risks to financial stability (Clinton has pledged to support Dodd-Frank, but the Republican party has proposed legislation that would soften the rules). But both candidates have called for renewing the Glass-Steagall Act, a Depression-era law that restricted affiliations between banks and securities firms. “Re-installing Glass-Steagall is generally talked about as detrimental to the big banks,” O’Hare said.

Information technology generally did well under Obama and poorly under Bush. The sector also did well under the previous Democratic president, Bill Clinton. Does that mean IT is a “blue” sector?”

Don’t jump to conclusions. IT generates a greater proportion of revenue from international sources than any other sector, S&P Capital said, and Trump’s proposals to implement a “tax repatriation holiday” could provide a big boost for IT. Hillary Clinton, on the other hand, has said she wants to “crack down” on companies that shift their earnings overseas and make sure companies pay their fair share in taxes. That sort of policy, if implemented, could put pressure on some of the major IT firms that now pay low U.S. taxes, S&P Capital added.

Energy and Health Care: The Reddest and Bluest Sectors?

Energy and health have tended to go opposite ways in recent years depending on party.

Energy was either first or second in sector performance every year between 2004 and 2007, all during Bush’s tenure. Republicans, with their “Drill, baby, drill!” political slogan, their call for rollbacks in environmental protection, and their history of electing presidents from the energy industry (the last two Republican presidents), are often seen as energy friendly. But energy has been the worst-performing sector under Obama, who frequently touts alternatives to oil and gas and prevented construction of the Keystone Pipeline.

Trump has said he wants to make industry less subject to regulations, and any pullback on environmental laws affecting oil and gas companies would conceivably help the sector. But energy is more than just drilling.

“Clinton has clearly spelled out an affinity for alternative energy in her campaign materials,” S&P Capital IQ wrote. “Among other things, she has announced plans to set a national goal of 500 million solar panels installed during a hypothetical two-term presidency.” Solar energy companies are a component of the energy sector that could benefit from a Clinton win, S&P Capital IQ said.

The health sector tells the opposite story under the last two presidents, finishing in the bottom five in annual sector performance in four of the years between 2003 and 2008 under Bush but in the top five sectors in five years under Obama. The Affordable Care Act (ACA), or “Obamacare,” which expanded health insurance coverage to millions during Obama’s time in office, is often cited as a factor in health’s better than 100% gains over the last five years.

“The ACA has been and will continue to benefit the health care sector as more insured patients drive increased utilization of health care services and ultimately sales growth,” noted S&P Capital IQ.

But Trump opposes ACA, and a victory for him could hurt some of the health care equipment and provider companies that have done so well under Obama.

The biotechnology subsector, which has soared during the last five years, could potentially run into some issues if Clinton wins, O’Hare said, because Clinton has made lowering expensive drug prices a big part of her campaign. Some of the most expensive drug products come out of the biotech industry, perhaps putting it front and center.

A Trump victory, however, could have the opposite effect, helping biotech by reducing worries about possible caps on drug prices.

“Biotech would probably react positively to Donald Trump because the market thinks Clinton is more in favor of pricing controls on drugs that are extremely expensive,” O’Hare said.

Other sectors of health, however, particularly the hospitals and HMOs helped by ACA, could be hurt if Trump succeeds in pulling back Obamacare.

Mixed Picture for Consumer Sectors

It’s harder to pin down how the consumer sectors might perform under a Republican versus a Democrat. Trump’s proposal to crack down on illegal immigration could hurt companies that use a great deal of cheap labor, such as food producers, hotels, and restaurants. Clinton’s proposal to raise the minimum wage could hurt the same companies. On the other hand, a rise in the minimum wage could conceivably help some of the big discount retail stores by putting more money in consumers’ pockets. 

SPX, health care, and energy sector

FIGURE 1: ENERGY SECTOR NOT AS HEALTHY UNDER OBAMA.

This chart illustrates how the S&P Health Care Services index (purple line) has performed compared to the S&P 500 Index (SPX) (middle line) and the S&P energy sector (green line) over the five years ended in early September. Data source: Standard & Poor’s. Image source: the TD Ameritrade thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

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