Telling Clients the Rest of the Post-Midterm Election Story

Advice to the Advisors

A Divided Congress Post-Election | Sheaff Brock Institutional

Telling Clients the Rest of the Post-Midterm Election Story

As Sheaff Brock research source Strategas Research observes, the performance of healthcare stocks has in general “tracked well with the prospects of a divided government.” In fact, Strategas notes, in post-election periods in general, healthcare has been just one of many beneficiaries.

Defense and aerospace

“Post election, analysts still predict a budget deal,” Military Times writes, predicting that while defense spending might not experience the hardy growth of fiscal year 18–19,” spending will not decline substantially.”

Alternative energy

The current administration has been an advocate of fossil fuel production. But, should a carbon tax be imposed to pay for infrastructure financing, that could hurt fossil fuel companies, possibly benefitting non-US energy companies over domestic ones. A more aggressive posture towards Iran and Venezuela might help the sector.

Consumer staples

SNAP (food stamp) programs tend to benefit consumer staple companies (Kraft, Heinz, Walmart, etc.), and the lack of dominance of either party could continue to favor consumer staples.

Infrastructure

An infrastructure bill will likely be signed into law, which could be a positive for construction and heavy equipment companies.

“S&P 500 and Dow surge in best rally after midterm elections since 1982,” Fred Imbert and Michael Sheetz crow in CNBC. “The major averages hit their season highs after President Donald Trump indicated he is willing to work with Democrats on policy initiatives that would help the economy keep growing.” J.P. Morgan quantitative analyst Marko Kolanovic commented, meanwhile: “We believe that a split Congress is the best outcome for US and global equity markets.”

Sheaff Brock Managing Director Dave Gilreath agrees. “As investors we are thankful the election is over,” he says. “Instead of political ads we are kind of looking forward to those Viagra ads again,” he quips. History is on the side of the stock market when it comes to post-election periods, he points out. Since 1946, the S&P 500 has not declined in the 12 months following a midterm election, and the average one-year return—over 15%, as shown in this chart:

In discussing the rest of the post-midterm election story with clients, an upbeat tone might well be in order, with potential for a happy ending!

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