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Amid red and blue state clash, Clinton-Trump contest offers potential green for investors

27 October 2016 in Trading Ideas

Key Takeaways

  • A victory by either candidate presents opportunities for politically astute investors
  • Opportunities are clear in gun, energy and defense sectors
  • Outlook for health care and real estate is more muddled

As one of the ugliest presidential campaigns in modern history staggers to an end, investors who favor either Republican nominee Donald Trump or Democratic standard-bearer Hillary Clinton are left with clear choices. Whoever wins control of Washington won’t just have the ability to appoint Supreme Court justices, manage foreign affairs and pardon turkeys – they’ll also manage a $4 trillion federal budget, roughly one-quarter of the nation’s GDP.[1]  Smart investors can recognize how changes in the nation’s capital next year will affect bottom lines, regardless of ideology.

Take guns, for example. Second Amendment advocates campaigned heavily against President Barack Obama in 2008 and 2012 – yet the industry reaped a $9 billion bonanza from his eight years in office. And that’s a small example; guns have great symbolic power in U.S. politics, but their financial weight pales in comparison to true financial behemoths like the $1.4 trillion energy business, one of the sharper dividing lines between the two major-party candidates. [2] [3]

Clear and Not-So-Clean Choices

The energy industry traditionally leans Republican, although oil companies have seen record production during the Obama administration. Clinton has advocated an aggressive approach to battling climate change that would favor renewable energy, such as solar, wind and other “clean-tech” industries. She would attempt to overhaul the tax code to eliminate subsidies for the oil and gas industry and increase regulation of hydraulic fracturing.[4]

The Republican nominee has pledged to push coal as a source of electricity, allow more oil and gas production on federal lands, and promote energy independence.[5] A Clinton victory likely represents an opportunity for investors to short stocks featuring pipelines, fracking, and coal. A Trump victory would likely present new challenges for renewable- and conservation-oriented companies.

Walk Softly and Carry a Big Defense Budget

Not all policy-related differences are as clear-cut. Voters in Trump-leaning states tend to invest in more defense-related stocks, according to Motif data. Trump has proposed a vast expansion of the military that would add as much as $90 billion annually to the Pentagon’s $582.7 billion proposed 2017 budget.[6] [7] “I will make our military so big, powerful & strong that no one will mess with us,” the potential commander-in-chief tweeted in January. [8]

It’s not as if Clinton, a high school supporter of the uber-hawkish 1964 Republican nominee Barry Goldwater, is advocating for the defense budget to be fully funded by bake sales.[9] The former Secretary of State was initially in favor of the 2003 invasion of Iraq, supported the 2009 surge in Afghanistan, and pushes for a no-fly zone in Syria. [10]

(In a related vein, Democrats may be more likely to invest in cybersecurity stocks, which can be linked to national defense. Both candidates favor policies that would increase the bottom line of high-tech security stocks. Clinton may have a bit more motivation to see online security enhanced. The Democrat has been embarrassed by the Wikileaks publication of more than 30,000 sensitive emails by her campaign chairman.) [11]

Follow the Health Care Dollars

The fate of health care stocks isn’t as clear. The U.S. spends about $3 trillion annually on health care. In his signature legislative accomplishment, Obama won passage of the 2010 Affordable Care Act, a patchwork of subsidies, credits, and mandates that has been wildly unpopular among Republicans. [12]

Clinton, who presided over a failed 1993-94 attempt to reform health care during her husband’s first White House term, has promised to defend Obamacare.[13] She’s vowed to reduce out-of-pocket costs such as co-pays and deductibles that profit insurers and drug companies, as well as curb the cost of prescription drugs.[14] While a Clinton victory might appear to be grim news for the drug industry, Big Pharma has supported the Democrat more than any other politician, showering her with $1.2 million in contributions during the current election cycle. [15]

The GOP nominee would replace Obamacare with expanded insurance competition and tax credits for consumers. A September RAND Corp. study estimated his plan would cause as many as 25.1 million Americans to lose health insurance, resulting in massive uncompensated care bills for the nation’s 5,627 hospitals. [16] [17]

Bricks of Gold

In terms of economic impact, the real estate industry isn’t far behind health. A 2015 study by the National Association of Realtors estimated it accounts for 16.8 percent of the economy. Trump, who built his fortune as a developer, claims he would reduce a 24.3 percent surcharge on homes caused by regulation, according to a National Association of Home Builders study.

Clinton would dedicate $25 billion to help poor families with down payments, counseling, and affordable rental housing. While real estate interests typically have sided with Republicans, Clinton has raised $13.2 million from the industry; Trump has collected $2.4 million.

Another health care overhaul or jolt to the real estate industry has the potential to wreak havoc on financial markets. Investors who can set aside ideology for a clear-eyed view of potential economic outlines are likely to enjoy healthy profits, regardless of which way political winds blow.

Do you have a hunch for which way the election could swing? Create your own custom motif of up to 30 stocks or ETFs to reflect your beliefs. Looking for some ideas to get started? Explore our catalog and open a free account today.

 

 

[1] Calmes, Jackie, “Obama’s Last Budget, And Last Budget Battle With Congress,” New York Times, February 9, 2016.

[2] Bump, Philip, “Barack Obama has likely given a $9 billion boost to the gun industry (at least),” Washington Post, March 11, 2015.

[3] Center for Sustainable Systems, University of Michigan, “U.S. Energy System Factsheet,” August 2016.

[4] Clinton, Hillary, “Climate Change,” 2016

[5] Trump, Donald, “An America First Energy Plan,” 2016.

[6] Parker, Ashley, and Matthew Rosenberg, “Donald Trump Vows to Bolster Nation’s Military Capabilities,” New York Times, September 7, 2016.

[7] U.S. Department of Defense, “Department of Defense (DoD) Releases Fiscal Year 2017 President’s Budget Proposal,” February 9, 2016.

[8] Trump, Donald, “@RealDonaldTrump,” January 24, 2016.

[9] Jackson, Brooks, “Hillary Worked For Goldwater?” FactCheck.org, March 27, 2008.

[10] Masters, Jonathan, “Here’s How Clinton and Trump Stack Up on National Security, Russia, ISIS and More,” DefenseOne, July 24, 2016

[11] Wikileaks, “The Podesta Emails,” October 2016.

[12] U.S. Department of Health and Human Services, “Key Features of the Affordable Care Act,” November 18, 2014.

[13] Hernandez, Raymond, and Robert Pear, “Once an Enemy, Health Care Industry Warms to Clinton,” New York Times, July 12, 2006.

[14] Clinton, Hillary, “Health Care,” 2016.

[15] Center for Responsive Politics, “Pharmaceuticals/Health Products,” October 21, 2016.

[16] Eibner, Christine, “Estimating the Impact of the Trump and Clinton Health Plans,” RAND Corp., September 23, 2016.

[17] American Hospital Association, “Fast Facts on U.S. Hospitals,” January 2016.

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