Election Winners And Losers In The Stock Market

Matthew McCall
updated | Author's Website

Election Hangover

NEWS: After a surprising rally to begin the week, the market gave back Monday’s gains and more after finding out who will be our next president. The Dow (^DJI) fell 486 points or 5.1% and is in danger of heading back to the 9000 level. The S&P 500 (^GSPC) have back 5.3% or 52 points today after a one-day close above 1000. The NASDAQ (^IXIC) also got smoked, losing 5.5% or 98 points after one week rally. Gold and oil also fell, the latter down 7% and back to $65/barrel.

THE BOTTOMLINE: So was this sell-off due to an Obama victory? I would love to say yes, you can blame it all on our new president-elect. However, that is not entirely true. The combination of his victory last night and the market’s dramatic overbought condition set stocks up for a big fall today. Keep in mind that the S&P 500 rallied 18.5% in 6 trading sessions. After that kind of parabolic rally in a bear market it is not uncommon for the market to experience profit-taking and the initiation of new short positions into the strength. Add in the victory last night, which from my view and many others, will not be too kind to our economy and stock market. Talk of raising taxes during a recession will never get the bulls excited on the floor of the exchange. The talk today was definitely on how much damage Obama will do rather than if he will do any damage to our already unstable economy. And the answer is that nobody knows. So in the end we are back to the “uncertainty” situation that the market hates more than a root canal.

All that being said, I look for the market to remain in a trading range for the next few weeks/months and therefore will use the volatility to my advantage. This means I will use the weakness as buying opportunities and the rallies as a chance to sell the laggards and initiate covered call positions.

Election Sectors

NEWS: An Obama victory leads to speculation which sectors will benefit from the liberal in the White House. The speculation of a shakeup to the healthcare sector has investors concerned with the large drug companies, on the other hand the generics and pharmacy benefit management stocks may be the winners. Aerospace & defense is another sector that could be hurt under the new president. Then there is coal, which Obama directly attacked last week. How about big oil companies that may face a windfall tax – if this occurs I may lose my mind, but because our new president-elect is so unknown, anything could happen.

THE BOTTOMLINE: There will be sectors that benefit from Obama and others will have an uphill battle. The solar stocks were expected to be some of the biggest winners under the new administration; however they were one of the hardest hit groups today. Granted they rallied big over the last week, but it was surprising to see them fall hard on the election news. But, if you look further into the sell-off you will find that California voted down a proposition that was aimed at the alternative energy companies. The sector also received a downgrade from a big Wall Street firm. I do believe in alternative energy and the future should be bright under Obama, therefore look to begin building positions on weakness. If you are an ETF investor there are a couple options: Claymore Global Solar Energy ETF (TAN) and MarketVectors Solar Energy ETF (KWT); today they were down 15% and 17%, respectively.

I am not going to get into too many specifics here as far as which sectors and stocks/ETFs to buy/sell due to the election. This will be saved for clients and subscribers in the coming days. But there is one niche sector I will share with you that was basically unchanged during today’s big sell-off. The Healthcare Information Service stocks concentrate on the electronic medical records sector. Obama’s healthcare plan did mention an investment of up to $50 billion in this sector and it is a must have to cut healthcare costs over the long-term. There are not many names in the sector, though there are two big names that I am warming up to and may begin buying in the near future.

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