(Bloomberg) — Stocks gained across the board in early trading after the U.S. midterm elections played out as expected, with the Democrats taking the House and Republicans holding the Senate. A divided government and potential gridlock is seen as positive for many industries.
There are numerous sector-specific issues as well. Cannabis companies are being buoyed by legalization in Michigan, while energy investors liked results in Colorado. Banks were mixed as regulations are likely to keep easing, though House Democrats may take a tougher look at the financial sector, and tech stocks rallied as investors mulled possible trade and regulatory developments.
“There’s no surprise here,” with the market offering “a shoulder shrug” to political concerns, Credit Suisse strategist Jonathan Golub said in a phone interview. “Net rancor” is already factored into the market, he says, and he sees President Donald Trump as bolstered by low unemployment and strong job creation.
“A split Congress has historically been bullish for equities and we expect to see the same pattern again,” Deutsche Bank Chief International Economist Torsten Slok says in a note.
Here’s a rundown of some of the stocks with the biggest moves, including those in sectors equity investors were watching ahead of the midterms:
Health care led gains in the S&P 500, thanks to a rally in managed care stocks, as the midterm election removes the risk of an Obamacare repeal or big legislative change to the U.S. health system. The S&P 500 Managed Care Index rose as much as 3.8 percent to a new record high. Some states also voted to expand Medicaid coverage, a boon for companies like Centene and Molina, focused on the program.
RBC analyst Brian Abrahams sees upside potential for biotechnology companies on easing political concerns and the “removal of an overhang.” The ETF that tracks the Nasdaq Biotechnology Index, the broadest gauge of the industry’s performance, rose 1.3 percent in early trading, while a more balanced biotech exchange-traded fund climbed 2.2 percent.
Large-cap biotechs that have stumbled over the last month as a risk-off trade deflated the group rebounded on improved sentiment. Shares of AbbVie Inc., Vertex Pharmaceuticals Inc., and Alexion Pharmaceuticals Inc. Were among notable outperformers.
The biggest banks were mixed, with Bank of America Corp., JPMorgan Chase & Co., and Citigroup Inc. little changed. Wells Fargo & Co. — which many thought would be under pressure if Representative Maxine Waters were to take control of the House Financial Services Committee — dropped about 1 percent. Gridlock is positive for financial stocks, KBW’s Brian Gardner wrote in a note, as Democrats won’t “be able to block or reverse the Trump administration’s regulatory agenda.”
“We should expect a torrent of bank headline risk, but it is difficult to see the rhetoric turning to reality given the GOP majority in the Senate and the presidential veto threat,” Compass Point’s Isaac Boltansky told Bloomberg via email.
Chair Waters’ initial oversight focus is expected to be on the financial regulators, Wells Fargo, and Deutsche Bank AG; the question now is whether that headline pressure will extend Wells Fargo’s time under the Federal Reserve’s asset growth cap.
Amazon.com Inc., which has faced scrutiny from President Trump, gained 3.5 percent. Companies with China exposure, including Apple Inc. (which gets about 20 percent of its revenue from China), and chipmaker Advanced Micro Devices Inc. also rose, as investors mulled whether there may be progress on trade issues.
Voters in California rejecting a referendum that sought to strip funding for infrastructure from Senate Bill 1 has “a positive read-across” for Granite Construction Inc. and Vulcan Materials Co., Goldman’s Jerry Revich wrote in a note. Granite’s stock soared 19 percent and Vulcan shares rallied 7.2 percent. Caterpillar Inc. also gained 2 percent.
Metals and mining stocks gained, as results led to a weaker U.S. dollar and could imply potential optimism on the trade risk sentiment.
Oil & gas investors can breathe a sigh of relief after Colorado’s Proposition 112 failed to garner enough support. The initiative would have required new drilling sites, processing plants and gathering lines to be more than 2,500 feet (760 meters) from homes, schools and other “vulnerable” areas. Companies impacted include Anadarko Petroleum Corp., which soared as much as 8.6 percent, and SRC Energy Inc., which jumped as much as 20 percent.
Cannabis stocks gained, led by Tilray Inc. and Cronos Group, after Michigan voted to legalize adult recreational use and Missouri approved a medical marijuana ballot measure. The ETFMG Alternative Harvest exchange-traded fund, under ticker MJ, advanced 3.9 percent.
Defense stocks, including Lockheed Martin Corp. and Northrop Grumman Corp., underperformed, as the sector has been under pressure over the past month amid budget growth concerns, and many think a split-party Congress may make for a more difficult resolution of issues relating to the Budget Control Act.
However, Cowen analyst Roman Schweizer said divided government isn’t being seen as “overly negative” for defense spending, and could even be positive if a bipartisan spending deal is reached that increases defense and non-defense spending.
For more election coverage, see Bloomberg’s ELEC special report.
(Updates throughout to reflect share trading and add additional companies. Adds section on defense stocks.)
–With assistance from Bailey Lipschultz, Michael Bellusci, Ryan Vlastelica, Tatiana Darie, Esha Dey and Aoyon Ashraf.
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