The market response to the surprising results of the presidential election has been interesting. From the Monday prior to election to the last day of November, the broad market as measured by the Standard & Poor’s 500 moved up about 6 percent. While it seems like the market has been soaring higher, it’s mostly recovering what was lost in the September through October pre-election jitters.
Specific sectors have moved dramatically, however, and in some instances it’s hard to attribute the moves to anything other than the election.
The health care sector shot up 7.5 percent in the three days following the election, while biotech shares surged more than 16 percent in the week following the election. The health care sector generally and drug companies particularly have been a favorite punching bag of Democratic politicians. Presumably, Hillary Clinton’s loss was considered “friendly news” to that sector. Health care’s strong prices were a temporary phenomenon, though. By the end of November, the sector lagged the broader market, up only 3.4 percent since the election.
The defense and aerospace sectors rose more than 12 percent once election results were announced. This seems to be tied to the election, yet is surprising because critics on the left felt Clinton was too hawkish while Republican Donald Trump’s isolationist leanings suggest lower expenditures in this area. Trump’s promise to make America great again presumably applies to the armed forces and military expenditures, and the sectors rallied strongly.
Energy stocks also rallied more than 10 percent after the results came in. Presumably, a Trump administration would encourage energy companies to expand by selling oil and natural gas to foreign markets. Or perhaps investors believe deregulation will reduce costs associated with environmental compliance. Interestingly, coal — which many thought would be an obvious beneficiary of Hillary Clinton’s downfall given she said she’d put coal miners out of business — popped up but didn’t hold gains. By the end of the month, coal company stocks had pretty much missed out on the rally completely.
Banking stocks were the big winner. Bank stocks rallied more than 20 percent as the month unfolded as investors decided Dodd-Frank legislation cramping the banks’ style would be reversed.
Not all investments rallied on the election news. Long-term treasury bonds fell more than 8 percent during the month, a large decline for what most investors consider a relatively safe investment. For skittish investors who’d been hiding out in gold stocks hoping for some insurance against an uncertain future, the month resulted in a decline of roughly 17 percent.
Investors in Mexico-based stocks were also in for a rough ride. An exchange traded fund that focuses on Mexico-based companies fell more than 10 percent on talks the Trump administration would terminate the North American Free Trade Agreement adopted during the Bill Clinton administration in the mid-1990’s.
Finally, the largest sector — technology — failed to participate much. During the first week, tech stocks sat still while most other sectors rallied. Perhaps investors feared all those California-based executives were going to pull up stakes and move to Canada. Silicon Valley isn’t known as a Trump-friendly zone. The nervousness dissipated as the month drew to a close, however. Tech stocks were up 3.4 percent. While they still lagged the broad market, the gap was closing as December approached.
So, what does the new administration mean? It’s difficult to tell, of course. It’s hard to know exactly what the Trump administration will actually do.
But now that the election has passed, people will come off the sidelines and start spending and investing again. Prior to the election, particularly given how ugly the contest had become, voters on both the left and right took their chips off the table until they discovered who’d win. Now, the pace of economic activity could increase since negative messages aren’t drowning out the relatively solid economic news reported on nearly a daily basis.
The important thing about the election isn’t necessarily who won, but that it’s finally over. It’s time that strong sales, solid job growth and a rebound in third and fourth quarter corporate profits get the headline treatment they deserve.