Good morning. The world wakes up to the reality that Donald Trump will be the Next U.S. President. Improbable and to most, shocking. Overnight, futures were down the better part of 1,000 points at worst. The markets do no not like surprises. There is euphoria from Trump supporters, and bitter disappointment from the Clinton camp. But a peaceful transition of power will once again happen in our beloved nation. As we near the open of the U.S. markets at 9:30 a.m. Eastern time, futures have rallied to now down less than 250 points.
We’ll let you digest the multitude of articles, social media reactions, and other reports at your leisure. But for us it’s back to immediate business. Let me move past all political commentary and jump immediately to the likely near-term impact to the markets and more specifically how we have our clients’ accounts positioned. This will be brief.
WE REDUCED OUR EXPOSURE TO RISK IN ADVANCE OF THE ELECTION
As we informed you in late August, we chose to reduce risk in advance of this Fall and the election cycle. For more specifics on the moves we made, see: https://www.tidalcreekinvestments.com/blog. As a result, we are relative anxiety-free this morning. We are appropriately positioned and are clear-headed to begin focusing on the opportunities (as well as potential threats) from a Trump Presidency. There will be no knee-jerk trades made by us today.
SECTORS HOLD THE KEY
As much focus as there will be on the general market indices from the media today, we advise the key is to look deeper into the likely impact on specific sectors. Immediately, this is what we expect:
SECTOR BENEFICIARIES:
· Healthcare Pharma and Biotechs: New expectation on relaxed regulatory environment and less threat of price controls on drugs. We have significant exposure to Healthcare in the form of Pfizer, McKesson, Cardinal Health and others names. We expect the sector to rally. PFE is up 9% pre-market.
· Defense: Republican presidency and control of Congress bodes well. We have some exposure to the sector via General Dynamics, Orbital ATK, and other names.
· Traditional Energy, Oil and specifically Coal: We don’t have exposure to coal which has been a horrible performer under the Obama administration, but we do have significant exposure to the energy sector. We expect relaxed regulation; a positive for the sector.
· Banking: In fairness, this sector arguably had a favorable outlook with a win by either candidate. With an expectation of rising interest rates we see an improved bank profits due to higher net interest margin (interest rate earned on loans minus paid out on deposits).
SECTOR LOSERS:
· Alternative Energy: Solar, wind, and other alternative energy firms will likely be negatively impacted by less government funding and subsidies. We have no direct exposure here.
· Obamacare-related health: Expect moderately negative impact on big health care providers like Cigna and Aetna. He have some exposure to these names.
Our above list is hardly exhaustive. This morning’s note is brief and is simply intended to let you know our initial thoughts on the unexpected election results. Like most, we are surprised with the results, but not caught flat-footed. Most of all, we’re eager to get to work. Have a good day.