There is a currently a great deal of anxiety over the election. It is not just political either—a Democrat or Republican win would create drastically different economic environments, which will lead to very different returns. One prominent hedge fund manager commented on the whole situation, saying “I think we all wish that we could kind of go back to thinking about investing without political risks”. Despite this longing, it is clear that we will not go back to that era anytime soon. Accordingly, check out these stocks, which should thrive no matter if Trump or a far-left Democrat wins the bid. Healthcare and tech look like big risks, but interestingly, large oil companies may be a good bet. If Warren wins and bans fracking, oil prices are likely to rise, helping large integrated oil companies. Another approach is to focus on stocks that will benefit from government plans that are already happening, such as those related to state infrastructure spending, legalized sports gambling, and shipping fuel standards.
FINSUM: We are still a year out from the election, but it is certainly worth thinking about how to position the portfolio, as polls leading up to the big day will move markets a lot.
Elizabeth Warren’s ascendency to being the leading candidate for the Democratic presidential bid, coupled with her strongly leftist policies, has begun spooking various sectors. Energy is ground zero. The reason why is a tweet recently fired off by Warren: “On my first day as president, I will sign an executive order that puts a total moratorium on all new fossil fuel leases for drilling offshore and on public lands … And I will ban fracking—everywhere”. If that eventuality happened, it would greatly wound the US oil industry. Entire oilfield services industries would cease to exist in the US, and Canadian shale would be the big winner, along with huge oil companies, where the price gains from the tightened supply would offset other losses.
FINSUM: Analysts estimate this would send oil prices up around 60%, but it would really hurt the US oil industry.
Every advisor is likely already aware of the huge ruction that occurred in money markets this week. A number of short-term stresses sent over-night borrowing rates up to 10% this week before the Fed had to intervene to inject tens of billions of Dollars of liquidity to calm things down. Most media outlets have explained this as a number of cyclical short-term factors, without really giving any specifics. The whole episode has been curiously vague. This has led to an unusually fertile environment for rumors and speculation.
FINSUM: So our readers will know that we have been reporting for years, and we must say that this has been one of the oddest, mostly poorly reported, and vague events we have ever covered. None of the cited reasons of this money market flare up make much sense relative to the scale of money the Fed has pumped in. One of the best rumors we have heard is that there may be a bank failure coming. Just before this market flare up, oil jumped almost 20% in a day, its single largest one-day move ever. That kind of black swan event could easily destabilize a large financial institution if it was positioned the wrong way, and ultimately led to the kind of short-term funding desperation we saw before the last Crisis. This analysis is probably all wrong, but the situation must be taken seriously.
Oil took a phenomenal turn lower this week as news came out that half of Saudi Arabia’s oil production had been taken out via drone strikes. Yemeni’s took credit, but many suspect it actually came at the hands of Iran. Oil moved in a big way, up 20% at one point, representing the biggest percentage move in three decades. The drone strike is hugely consequential, as it removed 5% of the world’s daily oil supply. Airlines stocks were hit badly on the news, and Amazon may be the next big victim as higher oil prices mean higher shipping costs.
FINSUM: This big change is going to filter through markets in different ways, but the threat to Amazon seems real and very meaningful.
The inverted yield curve has investors feeling down on their luck at the moment. What is the best way to play the turmoil and volatility? The answer may be in two seemingly unlikely places. The first is in energy ETFs, especially oil. Energy stocks have traditionally done very well during inverted yield curves, so an ETF like XLE seems like a good bet right now. Additionally, tech ETFs such as Vanguard’s VGT could be a good play, according to Bloomberg. Tech has often done well during inversions in the past.
FINSUM: Recommending a tech ETF right now is the height of contrarianism. Tech is basically caught in the middle of the trade war, and frankly, seems like a bad buy.