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Possible Winners And Losers If A Democrat Becomes President

17 March 2016 in Trading Ideas

Key Takeaways

  • History has seen stronger average S&P 500 returns during Democratic versus Republican administrations.
  • Sectors that could see positive impacts with a new Democratic president include health care, consumer staples, and alternative energy.
  • Pharmaceutical companies and other companies seeking corporate inversions to “dodge” taxes may be negatively affected with a Democrat in the White House in the upcoming term.

When it comes to the economy and the stock market, there are a multitude of factors that can affect growth. Politics perhaps has a more significant impact on the stock market than you may realize. Specific sectors and even individual stocks can become laggards, stagnate, or experience booms depending on which party is in power.

Election years can also sway the stock market, especially the final year of a president’s second term, as we recently wrote about. In this two part series we will examine possible winners and losers if a Democrat or Republican is elected president. To begin, let’s analyze how the stock market has performed historically during Democratic administrations.

Is a Democratic President Better for the Stock Market Versus a Republican?

President Obama took office in January 2009. In the last seven years, the general trend of the stock market has been bullish. The S&P 500 was at a low of 666 – a bit of an unlucky number – in March 2009. Since then, the S&P 500 has generally been on an upward trend, reaching a record high of 2,134.72 on May 20, 2015.1

Perhaps President Obama’s policies don’t deserve all the credit for the growth in the economy. It could well be due to luck or the timing of his term. However, the stock market typically has done better in the past when Democrats are in office. According to S&P Capital IQ, stock market returns have historically performed better during Democratic administrations. Since 1945, the S&P 500 has averaged 9.7 percent gains with Democrat presidents compared to just 6.7 percent gains with Republicans.2

stock market gains democrat republican

Source: S&P Capital IQ, CNN Money

It’s important to note, however, that during Republican President Gerald Ford’s term between August 1974 and January 1977, the S&P 500 had impressive 18.6 percent average returns each year. Ford came into office after Nixon resigned and the country was in the middle of a recession. Ford’s exit also came before the hyperinflation fright of the 1970s and the next oil crisis.3

There have been seven recessions and 16 bear markets during Democratic administrations. While that may not sound good, it’s better than the 14 recessions and 18 bear markets that have occurred under Republicans.4 Former Democratic President Bill Clinton also turned the largest-ever federal budget deficit into the largest surplus while he was in office.5

stock market performance

Source: S&P Capital IQ, CNN Money

Sectors That Could Outperform with a New Democratic President

 Now let’s examine which sectors and stocks could be worth watching if the Democratic Party stays in office for the quickly approaching new presidential term.

Health Care. Democratic front-runner Hillary Clinton is keen on health care reform. If she is elected, many analysts anticipate further development of Obamacare. This could bode well for health care stocks, which could experience higher participation rates. If Democrats increase funding for the Affordable Care Act, that could likely benefit multiple segments such as managed care facilities, hospitals, insurance providers, and medical technology companies. Increasing usage of electronic patient records, improving benefit management systems, and greater access to preventative care could also help make universal coverage more affordable and cost-effective.

Related Stocks: HCA Holdings (NYSE:HCA), Universal Health Services (NYSE:UHS), Cerner Corporation (NASDAQ:CERN), Express Scripts Holding Company (NASDAQ:ESRX), Envision Healthcare Holdings (NYSE:EVHC), Meridian BioScience (NASDAQ:VIVO).

Related Motifs: Obamacare, Medical Devices, Senior Care

Consumer Staples. Both Clinton and Sanders advocate raising the minimum wage, which in turn would help lower income families afford basic necessities. The widening income gap is quite a focal point of the election. The middle class has been shrinking while the lower class has been increasing, affecting many American households. If lower income families are able to start earning higher wages, consumer staples companies (ex. food, beverages, household goods) may experience an increase in sales.

Related Stocks: Wal-Mart Stores (NYSE:WMT), Dr. Pepper Snapple Group Inc. (NYSE:DPS), Church & Dwight Co. (NYSE:CHD), Kroger (NYSE:KR), Hormel Foods (NYSE:HRL), Procter & Gamble (NYSE:PG), Johnson & Johnson (NYSE:JNJ).

Related Motifs: Rising Food Prices, Healthy And Tasty, Discount Nation

Alternative Green Energy. Democrats often win the hearts of environmentalists for their passion and focus on clean, renewable energy. Alternative energy sources include wind, solar, hydropower and geothermal. Renewable energy has been on the rise and is predicted to continue it’s upward mobility. Back in 2011, renewable energy generation accounted for 20 percent of global energy generation. The international Energy Agency forecasts it to reach 25 percent of gross power generation in 2018.6 As the fastest-growing power source, stocks in this sector are worth watching.

Related Stocks: SunEdison (NYSE:SUNE), First Solar (NASDAQ:FSLR), JA Solar Holdings (NASDAQ:JASO), Ormat Technologies Inc. (NYSE:ORA), Badger Meter Inc. (NYSE:BMI), Tesla Motors Inc. (NASDAQ:TSLA), ESCO Technologies Inc. (NYSE:ESE).

Related Motifs: Battery Charged, Fossil Free, Cleantech Everywhere

What Might Suffer If A Democrat Takes Office?

Pharmaceuticals. The Clintons have fought to lower pharmaceutical prices for a long time. Back in 1992, former President Bill Clinton made a pledge to stop drug companies from price gauging by removing tax breaks for companies that increased prices by more than the Consumer Price Index’s measure of inflation. Hillary Clinton’s campaign announced on September 21, 2015 they plan to “hold the pharmaceutical industry accountable and rein in drug costs.” The stock market reacted quickly after her announcement and investors witnessed as much as a 6.4 percent drop in the S&P Pharmaceutical Industry Index within the next five days.7

Related Stocks: Teva Pharmaceutical Industries Limited (NYSE:TEVA), Bristol-Meyers Squibb Company (NYSE:BMY), Valeant Pharmaceutical International, Inc. (NYSE:VRX), Gilead Sciences Inc. (NASDAQ:GILD), GlaxoSmithKline PLC (NYSE:GSK), Sanofi (NYSE:SNY).

Related Motifs: Drug-Patent Cliffs, Battling Cancer, Biotech Breakthroughs

Companies Seeking Corporate Inversion. Hillary Clinton is adamantly opposed to companies seeking to re-incorporate overseas for the primary purpose of reducing tax liability on income earned outside the U.S., a restructuring known as corporate inversion. She has pledged to impose tax penalties on American companies that merge with foreign firms.8

Related Stocks: Pfizer (NYSE:PFE), Allergan (NYSE:AGN). Pfizer estimates that its plans to complete a $160 billion deal to merge with Ireland-based Allergan before year end could reduce its tax rate from approximately 25 percent to 17 percent in the coming years. Pfizer’s projects to save $1.2 billion in taxes next year, but that could change if a Democrat such as Hillary Clinton establishes new tax rules.9

Related Motifs: Tax Inversion Targets

More Taxes. Higher taxes are expected if either Bernie Sanders or Hillary Clinton is elected. Depending on your income, you may end up owing more taxes next year. Sanders plans to raise the top three tax rates, increase capital gains and estate taxes, and extend Social Security taxes if elected. In addition, Sanders wants to enforce a new 0.2 percent payroll tax on every worker to finance paid family leave payments. Clinton’s tax plan is a more middle ground version of Sanders’. She wants to raise capital gains and estate taxes, close tax loopholes on the wealthy, and create a 4 percent surtax on income above $5 million.10 Taxes should largely stay the same for most Americans if Clinton is elected.

Clinton and Sanders Tax Policy

Get Started Trading Today

Coming soon: be on the lookout for part 2 of this series, which examines possible winners and losers if the Republican party takes over the White House in the upcoming election.

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  1. Brecht, Kira, “Stocks To Buy If Democrats Keep The White House,” U.S. News, August 25, 2015.
  2. Long, Heather, “Democrats Vs. Republicans: Who’s Better For Stocks?” CNN Money, October 28, 2015.
  3. Ibid.
  4. Brecht, Kira, “Stocks To Buy If Democrats Keep The White House,” U.S. News, August 25, 2015.
  5. Lazaroff, Leon, “If Hillary Clinton Is Elected President, Here’s What Will Happen To The U.S. Economy,” The Street, February 12, 2016.
  6. Ibid.
  7. Hassett, Kevin A., “Stocks And The Clinton Effect,” American Enterprise Institute, November 2, 2015.
  8. Ballotpedia Staff, “Presidential Elections: The Road To The White House,” Ballotpedia, 2016.
  9. Wieczner, Jen, “Here’s How Much More Pfizer Could Save In Taxes With Allergen Deal,” Fortune, February 26, 2016.
  10. Zurcher, Anthony, “U.S. Election 2016: Bernie Sanders’ And Hillary Clinton’s Policies Compared,” BBC News, February 28, 2016.
  1. Paul Dingman
    23 Mar at 9:31 pm

    I am amazed at your biased and untruthful views of the performance of the economy under liberal and conservative Presidents. How can you give a fair evaluation and ignore Reagan? You say Bill Clinton balanced the budget but you fail to state that the only reason it happened was that he had a republican house and senate to deal with – he had no choice.

    Here are some facts about Reagan and Reaganomics
    The 1980s were years of economic progress, not decline. Real GDP grew by about one-third in the 1980s. The economic gains were widely distributed among income groups, with every income quintile, from the richest fifth to the poorest fifth, gaining ground in the Reagan years.
    The Reagan tax cuts were not a primary cause of the eruption of the deficit in the 1980s. The main two causes were an unexpectedly sharp reduction in inflation in the early 1980s that led to large real increases in federal spending, and a nearly $1 trillion military build-up during the last phase of the cold war.
    Most significantly, the economy of the 1980s outperformed that of the 1990s in virtually every measurable category.
    Economic growth was higher, job creation was faster, incomes rose much faster, and productivity climbed at a healthier pace

    For those who have not been brainwashed by the liberal media, here is a link with all the facts

    Paul Dingman

  2. Curious independent
    11 Aug at 7:22 pm

    Hmm….Okayy…I guess I was looking for something more objective. Lol. This writer would have you believe a democrat will bring nothing but fairy dust and unicorns giving free rides, with a visit from the tooth fairy every other night!!

  3. Richard Johnson
    25 Sep at 10:16 pm

    I’m democrated involved