Investors appear to be cheering the results of Tuesday’s midterm elections, but some sectors love the prospect of a divided Washington more than others.
Here are some of key assets and investments that were in focus on Wednesday following results that showed Democrats taking control of the House of Representatives and the GOP retaining its majority in the Senate.
Wednesday’s relief rally is being powered by health-care stocks, with the Health Care Select Sector SPDR Fund
up 2.8%. A major catalyst for surging health-care names was California voters striking down a ballot initiative that would have capped profits for dialysis services providers in the state, resulting in shares in firms like DaVita Inc.
and Henry Schein Inc.
moving sharply higher Wednesday.
California voted on a ballot measure, Proposition 8, that would limit how much revenue dialysis providers can earn from commercially insured individuals. Individuals with kidney disease need regular dialysis to remove waste from the body and keep blood pressure under control, functions that are normally handled by healthy kidneys.
Health-care investors also generally liked the results of the federal elections too, as they predict coming partisan gridlock will prevent new, significant legislation that could affect the sector more broadly.
“Health insurers are performing well after the results,” said Patrick Healey, founder and president of Caliber Financial Partners, who argued that given voter dissatisfaction with rising health-care prices, investors were rightly concerned that either a Democratic or Republican sweep could have led to changes to health-care laws that could have upended insurer business models.
Pharma stocks, however, are having a more mixed reaction. The SPDR SP Pharmaceuticals
was trading 1.4% late-afternoon Wednesday, trailing the broader SP 500 index
as investors remained concerned that one area of potential agreement between a Trump and Democrats in the House is the need for price controls on prescription drugs.
Read: Drug stocks rise after midterm elections, with one analyst calling outcome a ‘best-case scenario’
“There will be a lot of talk of pressuring established pharma firms to lower prices,” in the coming months, Healey said. “But at the end of the day, individual members of Congress take a lot of money from the companies they’ll be criticizing,” he said, arguing that these donations, in addition to Republican resistance in the Senate, could still prevent new drug price controls.
Check out: New Trump drug-price plan activates big pharma fear: government-set prices
Also read: President Trump wants to include prices in drug ads. Pharma, not so much
The energy sector is another leading stocks higher Wednesday, after Colorado voters rejected a ballot initiative that would have limited drilling in the state’s Denver-Julesberg basin. Energy explorers with interests in Colorado, like Noble Energy Inc.
Anadarko Petroleum Corp.
Pioneer Natural Resources Co.
and Climarex Energy Co.
are leading that sector higher Wednesday. The popular Energy Select Sector SPDR ETF
was edging up by 0.4%. The exchange-traded SPDR fund has climbed in the past three days and is on track to post gains in seven of the past eight sessions, even as crude-oil prices
have been under pressure around expectations for supply-disruptive oil sanctions against Iranian crude exports.
Materials stocks were also in focus for investors Wednesday, as new spending on infrastructure “could be a potential meeting point for next year,” between the Trump White House, Senate Republicans and a Democratic House of Representatives, wrote Alexis Garatti, head of macroeconomic research at Euler Hermes. “The logical compromise is to raise gas taxes, promote more public private partnerships and increase state funding,” he wrote, arguing that such a plan would boost the economy, to president Trump’s benefit, while providing union jobs to one of the Democratic Party’s most important constituencies.
“I am a little surprised that the materials sector is up even stronger than it is, given that both sides seem committed to infrastructure,” J.J. Kinahan, chief market strategist at TD Ameritrade, told MarketWatch. The SPDR SP Global Infrastructure ETF
is up 0.8%. Meanwhile, shares of iShares Global Infrastructure ETF
the most popular fund to track the investment segment, was rising 1%, while another prominent infrastructure fund Global X US Infrastructure Development ETF
was climbing by 1.6%, on Wednesday.
At the same time, hostility between democrats and Republicans, and fear of one side gaining more credit than the other for popular legislation, could prevent compromise even on issues where there is nominal agreement. Said Kinahan, “This could be about a bet on gridlock.”
Tech stocks are also getting a lift from the results of Tuesday’s elections, as investors wager that Democrats and Republicans will be unable to agree on a path forward toward stricter regulation on Silicon Valley’s highest-flying firms, Kinahan said. “Tech is having a good day because investors see regulatory pressure on the sector easing up,” he said. Big tech firms like Amazon.com Inc.
Google parent Alphabet Inc.
and Apple Inc.
are all up significantly Wednesday.
Meanwhile, cannabis companies traded broadly higher Wednesday, as U.S. midterm elections helped to usher in a green wave. The popular exchange-traded ETFMG Alternative Harvest
was climbing sharply on the day.
Check out: Opinion: Marijuana wins in the midterm elections, but the biggest prize is still ahead
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