- The stock market has widely applauded the prospect of a Biden administration and divided government, but some corners have outperformed while others continue to languish.
- Lower odds of tax hikes and new regulations helped tech, financials and health care stocks jump in a chaotic week.
- But those betting on energy stocks or the US dollar have missed the market gains.
- Visit the Business Insider homepage for more stories.
Stock markets quickly warmed on the prospect of a Biden presidency last week. And as with any major event, some sectors have won while others are facing new challenges.
President-elect Joe Biden became the likely winner on Friday morning after updated ballot tally in Pennsylvania and Georgia showed him surpassing President Donald Trump on major battlefields. Although Trump has yet to accept defeat, the ruling office headquarters called the race in favor of Biden on Friday and administration officials hinted that a peaceful transfer of power will take place.
The stock market, on the other hand, began to prepare for the result on Wednesday, leaping higher in anticipation of a divided government. While a Biden presidency may result in a more peaceful trade relationship and a higher likelihood of a higher economic recovery, a Senate likely to remain under Republican control could block tax hikes and tighter regulations.
Shares slowed their roll to close the week after back-to-back post-election rallies. Policy makers are now ready to step back and assess how this week’s election will affect risky markets and the economy in the years to come.
Here are the winners and losers of election week.
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The biggest stock market winners were probably tech stocks, if only for what they have to lose.
The sector led market-wide gains on Wednesday and Thursday as investors viewed Congress likely to be divided as protection against antitrust regulation. The S&P 500 tech index gained 10% over the week, extending the bullish speech and further bolstering the high valuations of tech giants.
Financial and healthcare stocks also rose as the specter of government scrutiny faded. The S&P 500 healthcare index gained more than 8% during the week, with investors betting that a divided government would fail to pass phased health insurance reform.
A corresponding financials index returned around 6% in hopes Senate Republicans could block a corporate tax hike.
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In the national elections, cannabis was a clear winner. New Jersey, Montana, South Dakota, and Arizona have all legalized the recreational use of marijuana, rapidly expanding the addressable market for fast-growing growers. Stockpiles of jars continued to rally throughout the week following Biden’s victory, with Democrats indicating they plan to decriminalize drugs at the federal level.
While such a policy will likely take longer to implement, it portends a bright future for the young industry.
Aurora Cannabis gained as much as 201% over the week, while peers such as Tilray, Aphria and Canopy Growth also rallied. The Horizons Marijuana Life Sciences Index exchange-traded fund, which tracks a basket of potted stocks, gained as much as 36%.
Ridesharing giants Lyft and Uber also skyrocketed after Tuesday’s election results arrived. The two companies fought to pass Prop.22 in California, which allows small economy businesses to continue to classify their workers as independent contractors and avoid offering the benefits of full employment. . Uber jumped 36% during the week, reaching an all-time high. Lyft won up to 41%.
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As the market as a whole rallied with the arrival of election results, energy stocks traded flat and lagged far behind the rally. A Republican-controlled Senate is likely to avoid the most progressive green energy policies backed by the Biden presidency. Even though fossil fuel inventories initially rose on Wednesday, they quickly erased the gains.
After rising nearly 4% on Tuesday, the S&P 500 energy index plunged and closed the week just below its open.
Meanwhile, the US dollar fell to its lowest level since March as investors looked to the Federal Reserve to boost the country’s economic recovery. Democrats and Republicans remain worlds apart with their respective stimulus proposals, essentially leaving the country to rebound without budget support since August. The economy will be less likely to rebound quickly and inflation expectations will be pushed further into the future. The Fed has indicated that it will not increase interest rates until inflation rises above 2%. As long as rates close to zero are in place, the value of the dollar weakens.
In addition, the Fed may have to ease monetary conditions further to keep the recovery on track. Such efforts could add liquidity to the financial system and further dilute the value of the dollar. True, a weaker dollar lowers the cost of imports, and President Trump has repeatedly called for a weaker dollar to improve the country’s trade competitiveness.
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Finally, the economic data releases that typically drive the markets were largely ignored, with election news dominating the media landscape throughout the week. Shares soared on Wednesday despite ADP’s employment report signaling a massive slowdown in recruiting activity in October.
And when the Bureau of Labor Statistics monthly non-farm payroll report significantly exceeded economists’ estimates, stocks fell again in Friday’s trading. Those looking to position themselves according to labor market data released throughout the week undoubtedly missed the market’s gains and fell prey to its pullbacks.
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