Buy, sell or hold: Ten ways to trade the U.S. election

Firstcash Holdings

05/11/2018 12:00

(Repeats to additional subscribers)
    NEW YORK, Nov 5 (Reuters) - Buy the dollar but sell FAANGs,
buy real estate and machinery, but sell the overall market. Or,
do nothing at all. 
    Investors heading into Tuesday's U.S. congressional
elections are trying to fathom how best to predict the outcome
and profit from it. 
    After two years of wielding no practical political power in
Washington, the Democratic Party faces a strong chance of
winning control of the U.S. House of Representatives in next
week's election, with Republicans likely to keep the Senate.
 urn:newsml:reuters.com:*:nL2N1WO12C
    These are some of the ideas that analysts, strategists and
traders have: 
    
    : BUY ANY DOLLAR DIP 
    If the greenback drops against other currencies on the
election result, Citigroup says it should be bought. “Midterms
are less likely to mark a major turning point for USD than some
investors fear,” Citi analyst Todd Elmer said in a report. 
    There is no strong historical relationship between midterms
and the path of the U.S. currency, making a Democratic House
victory unlikely to thwart the dollar's rally, Citi said. 
    
    : FAANGs COULD FALL ON DIVIDED CONGRESS 
    One policy initiative that looks viable under a divided
Congress is increased regulation of social media companies, said
Oliver Pursche, chief market strategist at Bruderman Asset
Management in New York. “That is an area where both the Trump
administration and Democrats agree,” he said. “We expect that to
occur in 2019.” If that happens, shares of Facebook, Twitter and
Alphabet, which have come under increased pressure this year,
could have more downside.
    
    : BUY CONSTRUCTION STOCKS 
    Dryden Pence, chief investment officer of Pence Wealth
Management in Newport Beach, California, is looking to buy
construction-related stocks, as he anticipates that an
infrastructure bill, one of Trump’s agenda items, will come to
pass regardless of which party controls Congress. “For
infrastructure, the most important thing about the election is
that it will be over,” he said. Among the stocks Pence likes are
United Rentals Inc  URI.N , AECOM  ACM.N , Jacobs Engineering
Group Inc  JEC.N  and Vulcan Materials Co  VMC.N .
    
    : BUY REITS ON DEMOCRATIC WIN 
    Scott Crowe, chief investment strategist at CenterSquare
Investment Management, a manager of real assets, said if the
Democrats win the House, it likely signals the end of tax cuts
or an infrastructure bill for Trump ahead of the 2020
presidential election. If this happens, it would be good news
for the 10-year bond yield, and "a lower 10-year bond yield is
good news for REITs."
    
    : BUY MACHINERY STOCKS 
    Analysts at Stifel see Trump quickly proposing a “Highway
Bill” when the House takes office if Democrats win control of
the lower chamber That may lead to increased political rancor
and Trump may take the high road of “the people’s business” by
proposing a transportation bill, benefiting Caterpillar  CAT.N 
and Deere & Co  DE.N .
    
    : CUT EM FOR RED REPEAT 
    Those positioning for a further poll shift toward
Republicans should be prepared for emerging market weakness,
wrote Michael Zezas at Morgan Stanley in a research note.  
    "The potential for a stronger USD and increased leeway for
further trade escalation would likely weigh on emerging markets
risk appetite. Already cheap valuations would likely protect
parts of EM, yet we think Asia would still be at risk due to
trade linkages and previous strong equity inflows. Our global EM
strategy team suggests short KRW, SGD, TWD with PHP, IDR and INR
also vulnerable." 
        
    : EXPECT VOLATILITY TO FALL 
    Some investment strategists are expecting volatility to ease
after the U.S. midterm elections as the elimination of at least
one uncertainty the market is facing right now will give traders
less reason to worry regardless of what the outcome is. 
    Parag Thatte, equities strategist at Deutsche Bank in New
York says: "Our trading desk thinks betting on volatility
reducing after the election would be a good trade right now.”
    
    : EXPECT BIOTECH TO FALL 
    If Democrats take control of the House and Republicans
continue to have an edge in the Senate, UBS Wealth Management
analysts say that among the areas where the president and
Congress could find common ground are drug price controls and
infrastructure spending; the former could pressure large pharma
and even biotech stocks lower, or limit their gains, while the
latter could boost those in engineering, construction and
building materials.
            
    : DON'T BELIEVE THE POLLS 
    BMO Capital Markets analysts Jon Hill, Ian Lyngen and Ben
Jeffery wrote in a recent note that many of their clients are
skeptical of political polls on the congressional elections.
    That skepticism suggests that current valuations do not
fully reflect the polls' expectations and Treasury yields may
still move down if Democrats take control of the House of
Representatives.
    The analysts also wrote that a potential error in the polls
might not necessarily skew toward Republicans, allowing for the
possibility of a bigger Democratic win than is currently
projected.
    
    : DO NOTHING
    "In our view, investors should avoid making investment
changes based purely on fears or speculation of election
outcomes," said analysts at Wells Fargo Investment Institute.
    It is more important for investors to maintain and follow
their longer-term investment plan, and await signs of action in
Congress, they said. 

 (Reporting by April Joyner, Trevor Hunnicutt, Rodrigo Campos,
Sinead Carew, Herb Lash, Karen Brettell, Megan Davies; compiled
by Megan Davies; Editing by Dan Grebler)
 ((megan.davies@thomsonreuters.com; +1 646 223 6190;))