Describing market movements can feel like you are chasing a moving target. But it is noteworthy that the market early on Wednesday, following the result of the Senate election in Georgia, is responding to the many changes – from tax policy to company oversight to health care and the environment – that could take place.
From a sector perspective, the immediate winners and losers seem to be largely in line with the expectation of which parts of the market will benefit from the Democrats controlling the House, Senate and White House.
The sector that performed best on Wednesday morning was financial, clean energy, healthcare and materials, measured here against the performance of the Select Sector SPDRs: SPDR Fund for Financial Electoral Sector (XLF) rose 4.6% early SPDR Fund for Energy Selection (XLE) increased by 4.2%; and the Materials Select Sector SPDR Fund (XLB) increased by 3.6%. For perspective, the SPDR S&P 500 ETF Trust (SPY) was 0.9% higher.
S&P 500 at record highs
What is behind the movements
Higher interest rates and discussion of major spending on infrastructure are supporting finances and materials. There is also a story spread about a so-called reflection trade that supports these sectors that are linked to the reopening of the economy. Energy is a more complicated story in which the sector has been supporting the sector for some time, and the news of oil production cuts in Saudi Arabia is driving the sector further, so the power seen on Wednesday has more to do with it. driving forces than the election itself.
However, the real energy-related winners are only a small part of XLE – the names of clean energy. President-elect Joe Biden spoke during his campaign about a $ 2 billion investment in clean energy during his tenure, which ETFs like the Invesco Solar ETF (TAN) this morning more than 7%; the iShares Global Clean Energy ETF (ICLN) increased by more than 5%. These ETFs, and others in this segment, first got a shot in the arm during the presidential debates in the fall when there was first talk of massive investment in clean energy, but the result on Tuesday blows new air in the upward momentum. And all in all, the news of the day raised the tide and lifted all boats.
The other side of the trade was technology. There are renewed concerns that a democratic government will be stricter and heavier with large technology companies, and this weighs on the segment today. It can mean anything from antitrust action to blocking future mega-technological mergers, along with other regulatory actions targeting the largest technology enterprises.
Technology – the longtime winner of the past year – was in any case ready for a correction of some kind, but the result of the election certainly gave the sector, at least initially, a shadow. The Technology Select Sector SPDR Fund (XLK) was 0.3% lower early Wednesday.
And finally, there is health care. One of the most sensitive sectors for the political environment was slightly higher this morning Healthcare Select Sector SPDR Fund (XLV) rising 0.9%. The prevailing market idea seems to be that Democrats in charge of Congress and the White House will not bring about any significant changes in the industry, but as we have seen in the past, leadership changes often lead to policy changes affecting this sector, so have yet to see be what happens next.
Marijuana ETFs heat up
Outside the sectors, marijuana ETFs were an interesting bag that was gathering on the heels of the election. The largest of the group, the ETFMG Alternative Harvest ETF (MJ), with nearly $ 1 billion in assets under management, rose 10% in early trading. The AdvisorShares Pure Cannabis ETF (YOLO), an actively managed ETF, rose 8.77%. Pot stock was hot.
Because marijuana is a controlled substance, businesses that ban the sale and cultivation of cannabis are not using the federal banking system, which is a major barrier to an industry that wants to use mainstream. The inability to use credit cards or FDIC-insured banks for transactions was a limitation for the industry but also an obstacle to investment. Democrats are expected to be friendlier to this industry, possibly opening the door to decriminalization at the federal level, and to accessing investment in a much-growing segment of the market.
Cinthia Murphy can be reached at [email protected]
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