Regulation won’t end up being as tough as feared
People — and investors — can become very emotional as a presidential election heats up, and this time around, feelings are obviously running high.
According to the polls, President Trump is likely to be shown the door and Joe Biden will have his party control both houses of Congress. Does this excite you? Does it fill you with dismay? Maybe the best thing for you to do as an investor is put your emotions aside and think rationally about which companies are likely to benefit from a Democratic sweep.
Ed Clissold, chief U.S. strategist at Ned Davis Research, a company that provides research to institutional investors, believes the managed health-care industry is ripe for strong performance in the event of a “clean sweep” by the Democrats.
He said the health-care sector tends to come under pressure heading into an election because “both parties, but especially the Democrats, have talked about more regulation.” But in an interview, he went on to say that following an election, health care tends to outperform the broad market “because the regulation isn’t as bad as expected.”
Clissold believes “Medicare for All,” supported by many Democratic presidential candidates during the primaries, “will never be the case.” And even if Biden saying is able to add a “public option” to the insurance exchanges that use managed-care companies under the Affordable Care Act, he would expect the new program “would still be run through the big managed-care companies, just like the Medicare Advantage programs.”
In other words, more revenue for the managed-care companies.
Managed care has outperformed under Trump
Here are two charts showing how the S&P 500 managed health-care industry group has performed against the entire S&P 500 index
with dividends reinvested.
First, total returns since Trump’s election on November 8, 2016:
Here are total returns since Trump took office on Jan. 20 2017:
Under Trump, with the Republicans controlling both houses of Congress for the first two years of his term, the S&P 500 managed-care industry group greatly outperformed the broad U.S. stock market.
Wall Street agrees
Clissold declined to name specific managed health-care companies for investment. However, there are only five industry players included in the S&P 500.
This table, sorted by market capitalization, includes them plus CVS Health Corp.
which acquired Aetna in November 2018:
|Company||Ticker||Market cap. ($bil)||Revenue – 2019 ($bil)||Total return – 2020|
|UnitedHealth Group Inc.||
|CVS Health Corp.||
You can click the tickers for more about each company.
Sell-side analysts have mostly positive opinions about the group:
|Company||Ticker||Share ‘buy’ ratings||Closing price – July 24||Consensus price target||Implied 12-month upside potential|
|UnitedHealth Group Inc.||
|CVS Health Corp.||
There are no “sell” or equivalent ratings among any of the analysts polled by FactSet.
Yes, it’s still early and polls can get it wrong
There are 99 days to go before Election Day on Nov. 3. At RealClear Politics, the national polls all show Biden ahead of Trump in the popular vote, with an average lead of 9.1%. Biden also leads most polls for battleground states, including Michigan, Pennsylvania, Wisconsin, Ohio and Florida, all of which were critically important for Trump’s Electoral-College win in 2016.
Then again, most polls were also running against Trump before his surprise win in 2016. The Electoral College map at RealClear Politics shows Biden in the lead, but also has 201 “toss ups” out of 538 electoral votes.
“The question is whether or not voters blame Trump” for the economic severe recession and the scope of the COVID-19 pandemic, Clissold said. “Pre-pandemic, one of the areas he received the highest marks on was the economy,” he added.
“If Trump is going to get re-elected, it will be because he can convince the electorate that he is the better candidate for the economy going forward. History is not on the incumbent’s side in this situation,” Clissold said.
The Democrats are expected to maintain control over the House of Representatives. In the Senate, the Republicans have a 52-48 majority. The Republicans are defending 23 seats on Election Day, while the Democrats will be defending only 12 seats. The RealClear Politics Senate Map shows 47 Senate seats solidly Republican, with 46 Democratic and seven toss ups. But the “Senate No Toss Ups” map shows the Senate switching to a 52-48 Democrat majority.
Regardless of your emotional or financial investment in the outcome of the election, the overwhelming trend has been for the stock market to rally following a presidential election, no matter who wins.