The general consensus heading into Election Day 2016 was that a Trump victory would spell doom for stocks. The nine-day losing streak experienced by the S&P 500 as Trump’s odds were rising and then two days of gains just before Election Day as his odds fell again served to reinforce then thinking. Even further, as actual vote counts that started to project a Trump victory came in on election night, Dow futures nose-dived 800 points!
So with the S&P 500 up more than a percent on the day with a little over an hour left of trading, why have the negative sentiments towards a Trump Presidency seemingly been flipped on their head so quickly? It appears that investors didn’t factor in the gains that pro-GOP sectors would experience with a Trump win and a Republican sweep in Congress. So far today, gains for stocks and sectors that stand to benefit from typical GOP positions have more than made up for any Trump fear selling.
We show how it’s playing out in the chart below. We took a snapshot of the stocks that made up the S&P 500 on the day Trump announced his candidacy back on June 16th, 2015. We then calculated each stock’s price change from that date through the close yesterday and grouped them into deciles (10 groups of 50 stocks each) based on performance. We then calculated the average price change of the stocks in each group today now that Trump has been declared the winner.
As shown below, the three deciles of the best-performing stocks (top 150 stocks) from the day Trump announced through yesterday are all averaging declines today. The two deciles of the worst performing stocks (bottom 100 stocks) from the day Trump announced through yesterday are all averaging big gains. Clearly, we’re seeing a Trump/GOP reversal. Throughout the campaign, stocks were pricing in better odds for Clinton to win than Trump, and now that Trump has won, the trade is coming unwound.
Below is a look at the average performance of stocks in each sector today compared to the average performance of stocks in each sector from the time Trump announced (6/16/15) through yesterday’s close. As shown, sectors like Energy, Health Care, Materials, Financials, and Industrials are seeing their stocks rally today, while sectors like Consumer Staples, Technology, and Utilities that saw big gains from 6/16/15 through yesterday are averaging declines today.
The early trade for Trump plus an all-GOP Congress is moving money into Health Care (no price caps), Financials (Dodd Frank repeal and higher rates), Materials (infrastructure), Energy (pro-oil), and Industrials (defense, infrastructure).