Polls indicate that Hillary Clinton now has a 90% chance of winning the election. The fallout of Donald Trump is already having an impact on the markets. Health Care stocks (Vanguard Health Care ETF) plunged 4% this week as investors began to factor in a Hillary Clinton presidency. A few weeks ago, I wrote that markets prefer a split government. Stock market performance has been higher when one party has controlled the White House but not both chambers of Congress. The new concern is that Democrat’s have an outside chance of regaining control of Congress. The change in government would be disastrous for drug companies. Just the mention of a government official calling out a drug companies’ pricing practice will cause their stock to plummet. Yesterday, Bernie Sanders sent a Tweet on Ariad Pharmaceuticals (ARIA), and the stock price immediately fell over 11%!
No CEO wants to see their company lose 11% of its value because of a tweet. There has been a rampant rise of prescription drug costs to the tune of over $2 billion last year. Health Care inflation is out of control. The Affordable Care Act, has also caused premiums to rise for the middle class. Even Bill Clinton criticized Obamacare, calling it, “the craziest thing in the world.” It is too early now to judge whether or not this sell-off has been an overreaction, making this a great buying opportunity.
The meltdown of Donald Trump and his campaign has made this election cycle different than past elections. According to a recent poll by ABC News/Washington Post, these two candidates are the two most unpopular presidential choices in more than 30 years of polling. I wrote a few weeks ago that I thought market reaction would be somewhat muted to the new presidency, but I’ve changed my view. An unexpected Donald Trump win, I believe would cause global markets to panic. Now that he is running as an anti-establishment candidate, without much support of the rest of his party, the uncertainty level of his administration is off the charts. You know it’s bad for the Republicans when my mother-in-law who has Fox news normally tuned on for 24 hours a day, can’t stand to watch.
The negativity surrounding politics and corporate America now threatens to spill over into the broader economy. Last Friday’s jobs report showed slower job growth in higher-wage industries. Businesses are becoming more cautious as managements are now taking a wait and see approach. Stocks fell this week to their lowest level since July as investors digested bad news coming out of China regarding lower than expected exports. We have entered third quarter earnings season and the estimated sales growth rate for the S&P 500 is 2.6%. It is no surprise that the Health Care sector has one of the highest growth rates of 7%.
I continue to believe that markets will remain very volatile. Many of the major U.S technology companies will be reporting a week before the election. While I do have high expectations for most companies to beat earnings this season, I have much lower expectations that politicians will be able to work together after this nasty election.
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