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Election Day 2018: Here Are the Winners & Losers

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Tuesday’s mid-term election will certainly change the tone of politics in the coming two years, if not the balance of power in Washington. The election is widely expected to see Democrats gaining control over the House of Representatives, while Republicans will probably retain control of the Senate, resulting in a divided Congress.

But state by state and district by district, the outcome will depend on voter turnout, enthusiasm and several other factors that polling may not take into account.Thus, the results will not only have implications for the stock market but for the economy as a whole. After all, it will shape the outlook for the 2020 presidential election. Let us, thus, look into the sectors that are most likely to be impacted by the election results.

A Divided Congress Bodes Well for Healthcare Stocks

The prospects of a divided Congress could be helpful for healthcare stocks. The Affordable Care Act (ACA) did come under tremendous assault by Republicans following Donald Trump’s election in 2016. ACA was subjected to a series of legislative changes. Democrats, however, now are expected to take over the House of Representatives and that is a blessing in disguise for the ACA.

With not much legislative changes under Democrats, things are surely looking up for Medicaid health maintenance organization (HMOs) and hospitals. And why not? ACA has always encouraged the development of Medicaid HMOs and benefited hospitals by reducing the number of uninsured patients who cannot pay their bills.

Leading hospital company, HCA Healthcare, Inc. (HCA - Free Report) and Medicaid HMO provider, Molina Healthcare, Inc. (MOH - Free Report) are, thus, most likely to gain from the election outcome. While HCA Healthcare carries a Zacks Rank #2 (Buy), Molina Healthcare sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

By the way, a split Congress should also benefit pharma bigwigs. This is because legislative action on drug pricing will be put off, something that has haunted the drug manufacturers in recent times. Notably, Amgen Inc. (AMGN - Free Report) , Biogen Inc. (BIIB - Free Report) and Johnson & Johnson (JNJ - Free Report) should breathe a sigh of relief as many of their drugs derive sales growth from price increases.

Democrats Increasing Clout Not Necessarily a Threat for Banks

Democrats taking over the House may exert some near-term pressure on bank stocks. For instance, Representative Maxine Waters (D-Calif.) may crack down on Wells Fargo & Company’s (WFC - Free Report) recent misdeeds.

But, let’s admit that Republicans are forecast to retain control of the Senate and that should help banks in the long term. Republicans have remained sympathetic to big banks and President Trump has taken enough steps to ease stringent banking rules. And, any how the current rising interest rate scenario bodes well for banks. Minutes from the U.S. Federal Reserve’s September meeting had already confirmed that the central bank is most likely to continue hiking benchmark lending rates at a gradual pace this year and beyond.

A Democratic House Could Affect Energy Players

Shares of integrated oil majors as well as exploration and production, refining and drilling companies could take a beating provided Democrats take the House. A Democratic House will surely try to reverse the easing of environmental regulations by the Trump administration.

And even if bills find it difficult to get through a Republican Senate, renewed focus on regulatory issues could become a potential headwind. Joe McMonigle, senior energy policy analyst at Hedgeye Risk Management said that “Democrats may bring a focus to other issues such as climate change.” He added that “there could also be an oversight spotlight on the Environmental Protection Agency and Interior Department environmental regulations.”

Auto Makers & Big Tech Have Much Riding on Election Results

Stakes are also high for the American auto industry. In general, Democrats winning the House is not good news for automakers. They are widely expected to support the more stringent Obama-era corporate average fuel economy standards currently in place. Thus, only if Republicans can control both the House and the Senate, a relief rally in auto stocks is possible.

Unlike automakers, no matter which party controls Congress, things aren’t looking good for big Internet players, purely from a regulation standpoint. Both the parties have stuck a similar tone on online privacy policy through a series of hearings that roasted top executives from Facebook, Inc. (FB - Free Report) and Twitter, Inc. (TWTR - Free Report) as security and data related issues piled up.

Any Election Outcome Bodes Well for Cannabis

If the Democrats gain ground, then the proposed federal laws like the SAFE Act will easily get implemented. This Act blocks the government from punishing banks that serve marijuana business in legal states.

GOP holding ground also does not necessarily mean that pot legalization is dead. As rightly pointed out by Cowen & Co analysts Jaret Seiberg and Chris Krueger that “given popular support for cannabis legislation and a preference by many Senate Republicans to respect states’ rights, a GOP Senate could advance a cannabis bill.”

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