Voters may be electing a change in some market sectors as the nation goes through the primary and general election season this year, according to HighTower investment analyst Joe Klein.
The U.S. is facing a unique situation this election cycle with contradictory trends influencing the market, said Klein, adding that the potential affect on the market first depends on which candidate the Democrats select and then on what chance he or she has of defeating President Trump. HighTower partners with advisors to create portfolio solutions that weigh the market trends for the clients, he said.
“Uncertainty [which is central to any election] does not bode well for the markets anytime, and there is more partisanship in this election than normal,” Klein said. “There are two distinct camps among the Democratic candidates, with Joe Biden, Michael Bloomberg and Peter Buttigieg on a more traditional side and Elizabeth Warren and Bernie Saunders on the more progressive side.” There also is a clearer divide between the Democrats and President Trump on several issues that frequently aren't as stark, he added.
Investments in health care, energy and technology will vary depending on the outcome of the primary elections and the likelihood of Trump being re-elected. Certain sectors could experience volatility depending on the Democrat nominee; however, some of the potential impact will be priced in when it gets close to the general election.
“A perfect example was demonstrated last year,” Klein said. "When Warren was gaining strength, the health-care sector was negatively affected. When her popularity started to wane, health-care stocks rebounded. The same effect could be felt in energy. If Trump looks like he will be re-elected, fossil fuels and offshore drilling will receive a push, and if a Democrat looks likely to be elected, renewables will receive a push.”
Once the Democrats select a candidate, the market reaction will depend on how likely it seems that Trump will be re-elected.
“If it does not look like the Democrat will beat President Trump, the market will remain status quo,” Klein said.
Contradictory forces also are at play on the Republican side. This is the first time a president has been impeached during a first term and while running for re-election. President Trump’s approval ratings hover in the mid 40s. However, the economy is good and predicted to grow this year while unemployment is low, two factors that play into the incumbent’s hands.
Looking at the situation from a broader perspective, an investor has to be comfortable with how his or her portfolio is allocated, Klein said. “It is like what happened with Iran. The market was down immediately after the killing of Iranian General Qassim Suleimani, but now it is back up,” he noted.
Investors should not react to changing geopolitical situations, unless they have the data to back up the reason for a change, Klein said, adding that at the same time some of the volatility that is expected during the year may enable smart investors to find opportunities.