U.S. citizens exercised their franchises for a fractured mandate in the just-concluded presidential and Congressional election. Even after more than 36 hours since the beginning of counting, we are not sure who the next president of the United States will be. Moreover, a lingering legal battle, as threatened by the incumbent President Donald Trump's camp, may delay the results further.
Additionally, the neck-and-neck competition between the Democrats and Republicans is heading for a divisive Congress. Even if Democrat candidate Joe Biden wins the race for White House, the Republicans are heading for the Senate.
This divisive mandate in the absence of any blue or red wave has taken many political analysts by complete surprise. However, more surprising was the surge in U.S. stock prices despite an indecisive political outcome.
On Nov 4, all the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — climbed 1.3%, 2..2% and 3.9%, respectively. According to the Dow Jones Market Data, these indexes posted their best daily gains post Election Day on record.
Implications on Economic and Geo-Political Policies Unclear
The highly contentious elections, much beyond the expectations of political analysts, have raised several questions on various major economic policies and geo-political strategies of the U.S. government.
First, the Democrats are predominantly concerned about the containment of the coronavirus and a big fresh fiscal stimulus to support the economy from pandemic-led devastations. The Republicans, on the other hand, are more interested in the reopening of the economy. In their view, the economy is capable enough of bringing back stability if it can operate at its pre-pandemic level.
No doubt the economy is growing even without a new stimulus, albeit at a slower pace. The resurgence of COVID-19 infections has forced a large part of the economy to either remain closed or operate in a sub-optimal level, thereby reducing the overall economic growth. The recent political outcome is inconclusive about the dilemma.
Second, the incumbent Trump administration was a champion for corporate tax cut and deregulations. A few unique features of the Trump administration were focusing on U.S.-based companies, the turnaround of the U.S. industrial sector, especially the manufacturing industries and a strong financial sector.
However, the Democrats are more interested in a nationwide reform of the healthcare sector, a tighter regulatory mechanism, and free trade doctrine without tariffs and duties. The big tech brothers are already being watched by Congress. The recent election results have no clear cut answer on what the Americans are preferring.
Third, is the U.S. trade and tariff related geo-political conflict with the Asian economic superpower China. The two year-long tariff war between the two largest trading nations of the world came to a halt after Phase 1 trade deal was signed in January.
Going by the deal, China was forced to strengthen its intellectual property protection plan. The Asian giant also agreed to purchase U.S. manufacturing, energy and agricultural goods and services over two years. The U.S. government agreed to reduce the tariff rate on low-cost Chinese products.
However, the situation changed after the outbreak of the coronavirus in China. The Trump administration imposed several stringent measures on Chinese high-tech companies citing these are a huge threat to national security.
Uncertainty regarding the U.S. government's China-related policies will have several implications on U.S. high-tech sectors as China is both a low-cost input supplier and the largest market for U.S. finished products.
Will Wall Street Hold Momentum?
It seems that the possibility of a tighter-than-expected election was already factored in market prices. Now, as the market is free of election-related volatilities, market participants can take their best decisions. It is nice to see that investors have already incorporated the pros and cons of Trump or Biden's win in market valuations. This is evident from yesterday's surge in technology, health-care, communication services and consumer discretionary stocks.
The U.S. stock markets are the best destination for investors. Between the post-recession era and the outbreak of the novel coronavirus, overall returns of U.S. stocks were nearly four times higher than the rest of the world. After successfully recovering from the Great Recession, Wall Street also recovered overwhelmingly from the trade-related assault of 2018. Wall Street is poised to continue on its northbound journey despite coronavirus-led devastations.
How to Invest
As the final result of recent election is still not clear and the resultant economic and financial policies are uncertain, it will be a better strategy to invest in Zacks Rank #1 (Strong Buy) stocks with long-term (3-5 years) growth potential. Large-cap stocks (market capital > $10 billion) would be prudent choices as these companies generally have a stable business model. You can see
. the complete list of today’s Zacks #1 Rank stocks here
A few stocks that fulfill these criteria are: FedEx Corp. (
FDX Quick Quote FDX - Free Report) , The Boston Beer Co. Inc. ( SAM Quick Quote SAM - Free Report) , Whirlpool Corp. ( WHR Quick Quote WHR - Free Report) , Lennar Corp. ( LEN Quick Quote LEN - Free Report) , Quidel Corp. ( QDEL Quick Quote QDEL - Free Report) , PerkinElmer Inc. ( PKI Quick Quote PKI - Free Report) and Newmont Corp. ( NEM Quick Quote NEM - Free Report) .
The chart below shows the price performance of above-mentioned seven stocks year to date.
5 Stocks Set to Double
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