News Saturday that the Associated Press and other leading news agencies had called the presidential race, naming Democrat Joe Biden as the probable president-elect, triggered a global stock market rally on Monday morning. Markets valued-in not only the economic impact of clear election results and a Biden presidency, but expectations for a continued balance of power in Congress. As the dust gradually settles on this year’s complex election, analysts and investors are struggling for a clearer view of just what’s in store for the economy, and what that says about the best stocks to buy as the rally continues.
A Biden/Harris win, a GOP-controlled Senate and narrowed Deomcratic leadership in the House now appear the most probable outcomes of the 2020 presidential election. Close margins will probably trigger automatic recounts of the presidential race in Pennsylvania and Georgia. President Donald Trump has so far declined to concede a Biden win, continuing to claim election fraud, directing his legal teams to pursue various legal challenges to the state vote counts. The balance of power in the Senate will ultimately be decided in two runoff races in Georgia on Jan. 5.
The stock market on Monday morning continued the strong rally that took hold as 2020 election results rolled in over the past week. At least some investor watchlists on Monday inlcuded Pfizer‘s (PFE) and BioNTech (BNTX) among their best stocks to buy.
Pfizer had reported early Monday its pmRNA-based coronavirus vaccine candidate, BNT162b2, had shown an efficacy rate above 90% in trials. Both Pfizer and BioNTech soared 11%. Pfizer scored a breakout.
Best Stocks To Buy As Election Dust Settles
Monday’s trading action, and that of the prior week, included a great many clues on what markets markets anticipate from a Biden-led White House. Last week, big names as varied as Facebook (FB) and UnitedHealth Group (UNH) rallied to one of their best weeks in a very volatile year.
Among the many stocks that dived, including Caterpillar (CAT), United Rentals (URI) and First Solar (FSLR), most did so only briefly before retaking lost ground. The prospect of a GOP-controlled Senate buoyed many industries, on the assumption that checked-and-balanced power posed a lesser threat.
Monday’s news from Pfizer wasn’t likely to influence the possibility of another round of coronavirus-related aid, although aid may have arrived with significantly more heft if a Biden presidency were backed by a Democratic Senate. A significant infrastructure push is likely under any election outcome, analysts say. As with coronavirus stimulus, the benefits from such spending would cascade across multiple industries.
A Win-Win For The Stock Market Rally?
Beyond infrastructure, early indications are that some of the best stocks to buy under Biden could be names in health care and renewable energy. Cigna (CI) and Enphase Energy (ENPH), for example, faired well in the past week’s stock market rally.
Meanwhile, banks and oil could suffer, although bond yields and oil prices both rallied Monday on the possibility of a Covid-19 vaccine, and the rising probability of a GOP-led Senate buffered the downside.
“The environment for the stock market, regardless of who wins, will be in pretty good shape,” Michael Arone, chief investment strategist at State Street Global Advisors, said in an interview before the election. “We still have very low interest rates. We’re likely to get more fiscal policy, with very accommodative monetary policy.”
Election Results Coming Into Focus
On Saturday, the Associated Press, CBS, CNN, the New York Times and others declared Joe Biden the winner of the presidential election. They called him the winner of Pennsylvania, which would be enough to give him at least 273 electoral college votes, three more than the minimum. Biden also is narrowly ahead in Nevada, Georgia and Arizona, though President Donald Trump is gaining ground in the latter state. Trump is expected to win North Carolina, though a final tally won’t come until at least Nov. 12.
Pennsylvania and Georgia, at least, are likely headed for automatic recounts. President Trump has been making claims of fraud and mounting legal challenges in the past few days, but the 2020 election appears to be over, at least for the White House.
Democrats will keep control of the House, though likely with a slightly smaller majority. In the Senate, the GOP appeared set to hold at least 50 seats. Two Georgia Senate races will go to runoffs on Jan. 5.
Republicans seem set to hold at least 50 seats. They could retain a slim majority if they win at least one of two Georgia Senate races headed for runoffs. But that election won’t be until Jan. 5. If Democrats win both seats, Vice President Kamala Harris would hold the tiebreaker.
Best Stocks To Buy As Blue Wave Crashes
Even during the election week stock market rally, investors braced for convulsions related to election results. After Election Day, they got them. Some of the best stocks to buy among big tech names, like Apple (AAPL), Amazon (AMZN) and Facebook took off. Election results after Tuesday cast increasing doubt on a possible Democratic sweep of the White House and Senate, easing some concerns over harsh antitrust action against the big tech and social media plays.
Biotech and pharmaceutical stocks rallied as well on Wednesday. Expectations for a GOP-led Senate eased some fears of a tough, quick turn toward drug-pricing reform. Defense stocks on Wednesday also got a bump, as the fading of a Blue Wave of Democrat control made less likely any immediate sharp cutbacks in defense spending levels.
However, solar stocks like First Solar and SunPower (SPWR) fell on Wednesday, as Biden’s support for renewable energy was likely to face challenges from a GOP-led Senate. Like many battered industries they rebounded a day later. Heavy equipment and materials names likely to ride a possible infrastructure wave, like Caterpillar and Martin Marietta Materials (MLM), did the same.
Modest Impact Expected From Election Results
On Monday, armies of state election volunteers continued sorting through election results for the White House and Senate races. Meanwhile, the coronavirus pandemic still raged.
During the prior week, new daily cases in the U.S. soared for the first time to more than 120,000, with daily death counts in an uptrend. That increased the threat of fresh re-closings. Pfizer’s vaccine news on Monday suggested at least one vaccine could earn FDA emergency approval before the end of the year. Other late-stage vaccine candidates could follow in 2021.
The White House contends manufacturing is ready to roll once approval is granted. But distributing a vaccine and getting most Americans vaccinated will take many months, at best.
Questions remain about big potential shifts in federal regulation. However, the Supreme Court’s new 6-3 conservative majority provides added backing to the status quo that’s existed under Trump and a GOP-led Senate.
As the stock market moves to embrace a Biden victory, Euromonitor’s baseline outlook estimated gross domestic product growth of roughly 3.5% next year under a Biden presidency. A Trump victory, it said late last month, would have trimmed that forecast by one to two tenths of a percentage point, owing to a prolonged trade war with China chipping away at growth.
“The direct impact of the presidential election on the US economic outlook is likely to be modest,” the firm said.
However, Jefferies economists wrote this week that a Democratic sweep and $3 trillion stimulus might have produced 5.5% GDP growth in 2021. But a “skinny” stimulus worth $500 billion might yield 4% growth.
Best Stocks To Buy: Health Care In Demand
One of the biggest moves amid last week’s election stock market rally came from managed care providers. Humana, Anthem (ANTM) and Dow Jones stock UnitedHealth all logged double-digit gains for the week. One of the best stocks to buy in the group, Cigna (CIG), spiked more than 20% last week. It was up another 7% on Monday, and just below a 217.40 buy point in a 21-week cup base.
The industry had faced two risk scenarios. One was a dismantling of the Affordable Care Act. That risk, stemming from a Supreme Court case which could undermine the law, would be smaller with Biden in the White House. Yet it won’t completely go away with Mitch McConnell ruling the Senate.
The other risk was of a unified Democrat government launching a significant health care reform initiative that could roil insurers, hospitals and more.
With Congress appeared headed for continued division — a prescription for more gridlock, and a pretty positive outcome for managed care providers with broad exposure to employer-sponsored coverage.
Even Centene (CNC), a Medicaid giant that had “the most to win from a Democratic sweep and the most to lose from (the) status quo,” according to analyst Gary Taylor at JPMorgan, rallied 15% for the week.
Infrastructure And The Stock Market Rally
Infrastructure spending, particularly under Biden, was another big-ticket item with the potential to shower heavy construction equipment makers, engineering firms and materials suppliers with tax dollars, Jefferies analysts said in a note.
Martin Marietta Materials and Vulcan Materials (VMC), suppliers of ready-mix concrete, crushed stone and other materials used in large-scale construction projects, would be key beneficiaries.
So would equipment makers including Caterpillar and Terex (TEX), as well as equipment rental leader United Rentals.
Shares of all those names took ferocious dives on Wednesday, as investors considered a divided Congress less likely to approve heavy spending initiatives. Some of the stocks, including Dow Jones stock Caterpillar and Terex, staged partial rebounds on Thursday.
For the week, Caterpillar, Terex and United Rentals all rose, while Marin Marietta and Vulcan Materials fell. United Rentals reasserted its place among the best stock to buy on Monday, rallying nearly 9% in strong trade.
Positive moves also came from companies providing tires, fluids and other chemicals that make heavy equipment run. Berwyn, Pa., based synthetic rubber maker Trinseo (TSE) spiked almost 16%. Eastman Chemical (WMN) had a better-than 5% gain for the week.
Election Results: Broadband Buildout
Longer term, the prospect of rising challenges related to the coronavirus pandemic have helped expose the need for sturdier internet capacity. As a result, alongside infrastructure spending, Jefferies also saw “increasing probability” of more money being channeled toward rural broadband development.
Shares of Calix (CALX), whose software and Wi-Fi gear help telecom companies build out their networks, soared 13% during the election week. CFRA analysts noted in July that expanding rural broadband and 5G would boost demand for fiber-optic cable, a potential positive for Corning (GLW). Corning stock fell 10% in the final week of October.
Corning climbed back on to best stocks to buy lists, rebounding nearly 9% during the election week stock market rally. On Monday, the stock gapped up to a 4.6% gain, seizing a new high.
Input from a GOP-controlled Senate will put greater emphasis on “traditional infrastructure,” Arone said. “Airports, bridges, roads, etc., and so things like industrials, and metals, and mining would do well.”
Bank Stocks And Oil: Best Stocks To Buy?
One camp of analysts contends that big financial companies could potentially suffer under a Biden presidency.
Bank stocks took a hit on Wednesday as bond yields tumbled. But bank stocks in general have advanced alongside the market during the postelection stock market rally, possibly due to the divided-Congress scenario.
Goldman Sachs (GS) bounced more than 6% last week. BlackRock (BLK) rallied 9%. As bonds fell hard and yields soared on Monday morning, Goldman was up another 7% — although shares continue to trade well below the year’s high from January.
A Biden presidency and GOP Congress might be a mixed bag for the financial group. On one hand, more modest stimulus could keep interest rates lower for longer — good for consumers and borrowers, bad for lenders. On the other, financial stocks were among the big winners from the Trump tax cuts, the corporate side of which will stay in place if the GOP runs the Senate.
Unified Democratic control, which is no longer likely, could have produced more bank-friendly interest rates, but harsher regulations.
Democrat-led restraints on banks aren’t likely to be as strict as the Dodd-Frank regulations that followed the 2008 financial crisis. Still, as Biden prevailed in the vote count, speculation rose as towhat role Sen. Elizabeth Warren (D-Mass.) might have in a new administration. Warren’s political ascent followed her leading role in the post-crisis Wall Street crackdown.
A GOP Senate could work to block Warren or other activist nominees from Cabinet positions.
“Throughout 2020,” Edward Jones analyst James Shanahan said over email, “we have been cautious on financial services stocks and we have been recommending that our clients reduce their exposure within stock portfolios, particularly to banks, due to concerns about credit and the outlook for interest rates and loan growth.”
Clean Energy Subsidies, Fossil Fuel Scrutiny
Fossil fuel names were not appearing on many best stocks to buy lists. However, oil prices rallied on Monday and Chevron (CVX) played a key role in driving the Dow industrials to a new record high. Biden has said he would ban new oil and gas permitting on public lands. Targeted Democrat initiatives such as green energy mandates, tax subsidies and fracking restrictions are less likely with a GOP-controlled Senate.
Reimposition of tougher fuel economy/emissions standards would be likely under Biden. And it would also mean a cessation of hostilities with states led by California seeking higher more stringent emissions standards as well as clean energy mandates.
In addition, “a new administration would lead to increased scrutiny for ongoing and new interstate pipeline projects that require federal permits,” JPMorgan analyst Jeremy Tonet wrote in the September report.
Reining In Technology
Before last week’s market rally, Democrats and Republicans had both begun to scrutinize companies like Facebook, Alphabet’s (GOOGL) Google and Amazon (AMZN). They are widely considered best stocks to buy among investors for both big cap and technology watchlists. But both political parties have argued that the tech giants hold too much sway over the way people shop, search and consume information.
Biden has expressed support for cracking down on anticompetitive practices. But so has Trump, and the Justice Department last month launched a federal suit against Google. The aim, the department said, was to stop the search giant from what it said were “anticompetitive and exclusionary practices” in search and search advertising.
Again the prospect of a divided government made a cohesive antitrust assault less likely. Facebook stock swept ahead 11.5%. Alphabet and Amazon each soared 9% for the week.
More broadly, Arone, of State Street, and Oppenheimer’s chief investment strategist John Stoltzfus noted that the pandemic has solidified digital adoption. Stoltzfus said he believed that digital technology’s place in time right now is similar to where the automobile was in the early twentieth century.
“That’s when a technology begins to be so broad-based, and so utilized, that it affects the way people do the things they do, whether it’s business or consumers,” he said. “And that means that consumers are lined up, waiting for the next upgrade.”
Election Results, Defense And Social Policy Issues
Elsewhere, despite the brief gains for some defense stocks this week, the U.S. defense budget is likely to only increase “modestly” under Republican control, JPMorgan said. That could translate into only modest gains for defense stocks like Lockheed Martin (LMT).
Those spending trends would face headwinds of concern regarding the coronavirus-fueled spike in U.S. debt. They would also come amid a bigger focus on emerging technology to confront adversaries like China, and amid efforts to get contractors to shoulder more development costs.
In some respects, Biden might be positive for big health care names, to the extent he focuses on broadening access to care, rather than supplanting private insurance.
“Health care might do better with Biden, in the sense that you get a national health care program that’s very broad based,” said Oppenheimer’s Stoltzfus, in an interview before the election results. “What it does in terms of controlling pricing or negotiating … health care companies will make up in increased volume in usage.”
Jed Graham also contributed to this article.
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