What a Long, Strange Trip It’s Been


by Ralph Cole, CFA
Executive Vice President of Research

Equity markets fell a little more than 1 percent on the week as the presidential race grew closer with the news of renewed investigations into Hillary Clinton’s use of personal emails during her time as Secretary of State. Additionally, the Fed chose not to raise interest rates when they met on Wednesday, but signaled pretty clearly that they would be tightening in December.

Tuesday will hopefully mark the end of one of the longest and strangest election cycles that any of us can remember. That can be considered a good thing for a number of reasons.

Capital markets don’t like uncertainty and this race has been as uncertain as any. As of Tuesday, we will have some clarity as to the make-up of congress and the new commander in chief. At this point in time the most likely outcome is that Hillary Clinton wins the presidency, Democrats win the Senate and Republicans keep the House of Representatives. We would place that outcome at about a 50 percent probability. We would place the probability of a Democratic President and a Republican Congress at about 65 percent.

With the first outcome mentioned above, we would expect the market to rally as we move through the end of the year. This since Mrs. Clinton is a much more known entity for the markets than her opponent. Markets would then begin the inevitable process of digesting the agendas of both parties as we move through the new year. This would, of course, impact individual industries and sectors differently.

We think defense spending will increase in the coming years, which will be good for defense contractors. We also think the dynamics within the healthcare sector could be interesting. We think biotech and pharma could suffer in the near-term from Presidential race rhetoric, but we think there is real value in both of these areas. We think the Affordable Care Act would remain basically unchanged, which would be good for HMOs and hospitals.

Some other areas of common ground between Republicans and Democrats could be infrastructure spending and corporate tax reform.

Maybe the idea of this election being over has gone to our head, but we hope some of the messages from this election have been received by the politicians. We send them to Washington to get things done; our hope is that can begin to happen in 2017.

Our Takeaways for the Week

Markets sold off as election polls show the race getting tighter
Markets tend to rally after elections