The Rest of the Post-Midterm Election Story

Post-Election Stocks | Perspectives by Sheaff Brock Investment Advisors

The Rest of the Post-Midterm Election Story

The performance of healthcare stocks, as we’ve been discussing, has in general “tracked well with the prospects of a divided government.” One Sheaff Brock research source, Strategas Research, remarks that in post-election periods in general, healthcare has been just one of many beneficiaries of a “divided government.”

Of course, the December ruling by a Texas judge on the constitutionality of the ACA and the subsequent staying of his ruling during appeal has caused some volatility in the healthcare sector. As a result, Sheaff Brock Managing Director Dave Gilreath posits, the punishment those stocks have taken might give investors a chance for bargains for long-term investments.

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, if a carbon tax is used 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 will likely continue to favor consumer staples.

Infrastructure

An infrastructure bill will likely be signed into law, which would possibly 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:

The rest of the post-midterm election story? There’s still potential for a long-term happy ending.

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