On Friday we ran an article covering which sectors and stocks would do well if the Republicans swept the election. Today we are doing the opposite side of that coin—the stocks that will win big if the Democrats sweep. Democrats are currently leading in the presidential poll and seem likely to keep ahold of the House, while the Senate looks like much more of a stretch. That said, if a sweep happens, infrastructure may be a key sector to surge as a large infrastructure bill would seem likely. Other sectors likely to gain are renewable energy, semiconductors, consumer staples, and oddly, gun stocks (since sales will likely surge on fears of regulation).
FINSUM: The infrastructure play seems like a good one, semiconductors also (like Western Digital). We still think a more likely scenario is a split Congress.
The huge market volatility that accompanied COVID has laid the state of American retirement very bare. Not only are countless people under-capitalized for retirement, but many pulled money out in March, missed the big recovery and are now sitting with considerably smaller portfolios. This has led even the most ardent anti-Annuities advisors—mostly RIAs—to start recommending the products to some clients. Annuities can lock in income that is very hard to get elsewhere right now given ultra-low rates. Annuities ae complicated products and there are many different varieties, ranging from immediate income to variable annuities to fixed income annuities with income riders. For fixed index annuities, check out joint-life policies from Protective Life, Minnesota Life, and Delaware life. For variable annuities, look at Jackson National Life, Transamerica life, and BrightHouse Financial.
FINSUM: Annuities can be a good choice right now depending on the state of a client’s preparedness for retirement and the other assets in their portfolios. Just pay attention to the fact that most annuities providers have significantly cut payouts recently because of the Fed’s actions on rates.
It is a great time to be an investment bank. That fact became very clear last week when Goldman Sachs and Morgan Stanley earnings destroyed those of more traditional lenders like Bank of America, JP Morgan Chase, and Wells Fargo. Goldman, for instance, may be a great buy. It has much less main street lending exposure than regular banks, and has booming underwriting and trading businesses that are benefitting from low rates and market volatility. Some nice summary comments from an analyst at JMP Securities, saying “Goldman had a phenomenal quarter that allowed the firm to pad its legal reserves and conservatively position itself on loan losses … The bigger story is where the firm is going … Goldman is the biggest transformation story in finance, and the pandemic hasn’t derailed that”.
FINSUM: Firstly, these earnings came with all their employees working from home. So a 50% outperformance versus expectations with home-based traders. To us that is a sign of excellent management. More generally, their business mix—with a majority of institutional and growing, but not huge, consumer-facing revenue lines—seems ideal for the current environment. The stock is also priced below book value.
Because of how the polls are trending, very few seem to be thinking about the fact that a Republican sweep of all three chambers of the government could happen. When you step away from the polls and think about the fact that Republicans currently control two of the three chambers, it becomes more realistic; and even more so when you consider that polls are likely skewed towards Democrats because of “silent” Republican supporters. If the Republicans sweep, or even just if Trump wins, then the sectors that will surge are energy, banks, healthcare, and defense. In particular, think names like Marathon Petroleum, Bank of America, Pfizer, and Northrop Grumman.
FINSUM: This may be unlikely, but it is not as wildly unrealistic as some make it sound. Perhaps smart to have a portion of the portfolio in these sectors headed into the election?
Some bad news on the jobs market emerged this week. In the weekly data, another 1.3m Americans applied for unemployment assistance. That number has stayed steady for weeks and shows no signs of abating. But it is other contextual info that makes that number worse. For instance, job openings are now declining, with total numbers in July down versus June. Growth in worker hours is also waning after growing for several weeks. Finally, google searches for “file for unemployment” are growing.
FINSUM: When you take all this together, a comprehensive picture is starting to show. It appears that the rising COVID cases may now be seriously putting a halt on the recovery.