Equity investors have homed in on six key sectors ahead of Tuesday’s midterm elections, and pharma and bank stocks look best positioned amid expectations for a divided Congress.
Pharmaceutical and biotechnology stocks may gain if the expected stalemate takes the threat of drug pricing restrictions off the table, according to analysts. On the other hand, industrials may continue to languish under a divided government as a major spending package would be unlikely. Technology and internet stocks are likely to face more regulatory scrutiny no matter who’s in power. The opposite is true for banks, which will probably benefit from looser rules regardless, as President Donald Trump’s regulators are firmly in place.
Energy stock investors are more focused on local outcomes, including a statewide drilling referendum in Colorado and a push for renewables in Arizona. The jury is still out for cannabis stocks with marijuana legalization on the ballot in four states, including recreational pot use in North Dakota and Michigan. Meanwhile, policy watchers are skeptical there will be a shift toward China on trade no matter what happens in Congress. Outside the U.S., emerging markets could see gains if the vote goes as expected.
To be sure, some market watchers say not much will change in any outcome and it’s mostly just about playing defense.
Greg Valliere, chief global strategist at Horizon Investments LLC, said the election may have “only a modest impact on investors” who have bigger macro worries, including rising interest rates. And CIBC’s head of portfolio strategy Ian de Verteui writes that “history suggests equities do fine post-midterms” even when they often result in the president’s party losing seats.
Here’s what Wall Street is saying about key industries to watch:
DRUGMAKERS
Investors may pile back into pharmaceutical and biotechnology stocks if midterm U.S. elections result in the expected stalemate between two major parties at odds on how to tackle escalating drug prices. Gridlock in Congress for at least the next two years would lessen the risk of disruptive, government-dictated pricing changes, according to analysts.
BANKS
Analysts expect some near-term pressure on bank stocks but say it won’t be all bad news. Most market watchers anticipate Trump’s efforts to ease bank rules will continue, as his regulators are firmly in place. Veda Partners’ Henrietta Treyz said the very passing of the election itself will eliminate uncertainty and could help shares rise.