Stocks climbed in the days following the Nov. 3 election as Joe Biden’s lead strengthened, along with the possibility of a Republican Senate — an outcome that would meet some of Wall Street’s best-case scenarios.
That’s because a Biden victory with a split government could lead to an increase in fiscal stimulus while damping investor concerns about higher taxes and much tighter regulation.
“The election was obviously a huge cloud over the market, and it’s breaking,” Ally Invest Chief Investment Strategist Lindsey Bell wrote in a note. While underlying economic and earnings trends along with Federal Reserve policies have been propping up optimism, the potential for a split Congress is “providing a sigh of relief.”
To be sure, Bell cautioned that risks including uncertainty about more pandemic aid, the impact of rising coronavirus cases on economic data and the possible dragging out of election results amid legal battles could mean more market volatility ahead.
Here are the sectors that were moving in the wake of the election (all share price moves are for this week’s performance):
Tech, Electric Vehicles
Tech stocks rallied on expectations Biden won’t be able to implement key progressive goals, like antitrust reforms. But that “doesn’t mean his administration won’t take aggressive executive actions to rein in big tech firms like Google, Facebook, Amazon and Apple,” Beacon Policy Advisors said in a note.
The Philadelphia Semiconductor Index rose more than 12% this week, its biggest gain since March. The industry has high exposure to China — in both its revenue footprint and supply chain — and some are betting a Biden administration will relax some trade tensions.
Electric vehicle companies had some hefty gains this week on expectations for a Biden presidency: shares of Tesla Inc., Nio Inc. and Nikola Corp. all jumped.
Biden’s $2 trillion plan to achieve a carbon-free power sector by 2035 had sent electric-vehicle makers, solar panel manufacturers and other clean-energy companies soaring even before this week.
Banks, Brokers, Bourses
Goldman Sachs Group Inc. analysts predicted financial services companies will benefit from better capital markets and more M&A along with the dwindling likelihood of tighter regulation and higher taxes. Alternative asset managers are well-positioned, as they’d been lagging behind amid investor worries about taxes, rules and a steeper yield curve, analysts said. The firm’s top picks include Morgan Stanley, KKR & Co. and Blackstone Group Inc.
“Even if Biden wins, we think the chances of sweeping regulatory changes has been reduced,” Stifel’s Brian Gardner wrote. “Progressives had their wings clipped and a Republican Senate could be a check on overly progressive nominees.”
Brokers looked like winners, as other analysts recommended Goldman and Morgan Stanley, as they may benefit from elevated trading volatility and are more insulated from interest rate and credit pressures than other banks. Exchange stocks climbed as government debt sales and elections-related volatility pointed to an increase in trading volume.
S&P 500 health-care stocks rallied to a record on Thursday and the sector benchmark closed at a new one Friday. A bipartisan split promises little change regarding key threats to industry profit, like curbs on prescription drug prices or overhauling Obamacare.
Health insurer stocks like UnitedHealth Group Inc. and Humana Inc. reached new heights on Wednesday, though the advance tempered over the past two trading days.
Cannabis, Prisons, Guns
Cannabis stocks extended gains into a second day as Biden appeared on the cusp of victory. CIBC said investors expect “meaningful reform,” and that “it’s times like these that are optimal to own cannabis stocks as valuations can expand significantly.”
Pot stocks had rallied on Thursday, reversing a slump the day before, on renewed optimism over the lifting of restrictions on marijuana sales in five states this week.
Private prisons fell with CoreCivic Inc. and Geo Group Inc. tumbling along with Biden’s rising chances. Democrats have long targeted private prison operators.
Gun stocks were mixed. Sturm Ruger & Co. and Smith & Wesson Brands Inc. rebounded after drops, while Vista Outdoor Inc. gained after posting better-than-expected earnings. Voting passed peacefully, while chances for post-election unrest seemed low, lessening consumers’ urgency for more guns.
Bitcoin extended recent gains on Friday, continuing its march toward $16,000 after joining a slew of assets from oil to Asian stocks that rallied in the wake of the U.S. election.
Some see a Biden presidency as problematic for cryptocurrencies, as the Trump administration has been pushing “a more accepting regulatory stance toward digital currencies and initial coin offerings,” according to analyst Jaret Seiberg at Cowen. A Biden White House would probably be more concerned about protecting consumers and investors than focusing on opportunities for digital currencies, he said.
Precious metal miners rose after gold broke through “psychological levels” of $1,920 per ounce on Thursday and the U.S. dollar declined. Meanwhile, the lithium market would likely benefit from a Biden victory, according to the biggest producer of the key ingredient in batteries for electric vehicles.