Back to top

Image: Bigstock

Sector ETFs & Stocks to Make the Most of a Divided Congress

Read MoreHide Full Article

Wall Street has been on one of its best rallies in history post election given the strong bets for a divided government with the likelihood of the Republicans continuing to control the Senate.  Though the Biden-Trump election outcome is not yet finalized with several key states including Pennsylvania and Nevada yet to be called in favor of either candidate, the vote count failed to produce a clear Democratic sweep as was expected.

However, Joe Biden is edging closer to becoming the next president of the United States. According to the latest Associated Press data, former Vice President Joe Biden had 264 electoral votes and President Donald Trump had 214. The Democrat challenger needs just six electoral college votes for victory. Candidates require 270 electoral votes to win the election.

A divided government would reduce the chances of major tax increases and tighter regulations, which could crimp corporate profits but also lowered the prospect of a major stimulus package in the near term. The diminished chance of a massive U.S. fiscal stimulus will put pressure on central banks globally to inject further liquidity. These expectations have instilled strong confidence among investors, thereby leading to a strong rally in the stock market (read: Wining & Losing Sector ETFs Post Election Day).  

Notably, the major benchmark is on pace for their biggest weekly gains since April. The Dow Jones and the S&P 500 have risen more than 7% each so far this week while the Nasdaq Composite Index has climbed 9%.

As the market is pricing in Biden as the next President and a divided Congress, where Republicans continue to control the Senate and Democrats the House, most sectors stand to benefit from the scenario. Below we have highlighted a few sectors and one ETF & stock from each of these:

Technology

The divided government will limit the new legislation and dims the prospect of an antitrust breakup of mega-cap tech companies. As such, the technology sector will enjoy huge benefits from this potential outcome.

Invesco DWA Technology Momentum ETF (PTF - Free Report) : This fund follows the Dorsey Wright Technology Technical Leaders Index, and provides exposure to 38 companies that are showing relative strength (momentum). It has amassed $253.7 million in its asset base and charges 60 bps in annual fees. The product is up nearly 14% since the Election Day and has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: 5 Tech ETFs Leading the Post-Election Rally).

Alphabet Inc. (GOOGL - Free Report) : This is one of the most innovative companies in the modern technological age. Over the last few years, the company has evolved from primarily being a search-engine provider to cloud computing, ad-based video and music streaming, autonomous vehicles, healthcare providers and others. GOOGL has a Zacks Rank #2 and a VGM Score of B. It is up 8.5% since the Election Day.

Marijuana

Democratic nominee Joe Biden's lead in election reflects a major boost for the U.S. cannabis industry. This is because democrats have committed to decriminalize marijuana at the federal level in the United States if they win. Additionally, five states legalized marijuana through ballot measures. New Jersey, Arizona, and Montana approved legal recreational marijuana for adults over the age of 21. Mississippi approved medical use, while South Dakota approved both recreational and medical use at one time.

The Cannabis ETF (THCX - Free Report) : This ETF offers investors exposure to a basket of stocks that are expected to benefit from the burgeoning hemp and legal marijuana industries. Holding 28 stocks in the basket, the fund has amassed about $24 million in AUM and charges 70 bps in annual fees. It has gained 12.7% since the Election Day (read: Cannabis ETFs Hot Ahead of Elections: Here's Why?).

Aurora Cannabis Inc. (ACB - Free Report) : This Canada-based company is engaged in the production and distribution of medical cannabis. It has climbed 32.6% since election day and has a Zacks Rank #3 (Hold).

Healthcare

A divided Congress will lower the odds for "Medicare for All" or a government expansion of mandatory benefits.

iShares U.S. Healthcare Providers ETF (IHF - Free Report) : It follows the Dow Jones U.S. Select Healthcare Providers Index with exposure to companies that provide health insurance, diagnostics and specialized treatment. The fund holds 53 securities in its basket and has amassed $968.5 million in its asset base. It charges 42 bps in annual fees and has a Zacks ETF Rank #3 with a Medium risk outlook. The ETF has risen about 10% since the Election Day.

UnitedHealth Group Incorporated (UNH - Free Report) : It is the largest health care services company in the world, providing a wide range of health care products and services, such as health maintenance organizations (HMOs), point of service plans (POS), preferred provider organizations (PPOs), and managed fee-for-service programs. The stock has a Zacks Rank #3 and a VGM Score of A. It is up 13.5% since the Election Day.

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>