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The US election won’t be a significant game changer

29 October 2020

This content is for professional investors only as defined by the MiFID.

By Nina Lagron, CFA Head of Large Cap Equities

While the world is focused on the outcome of the US election, a quick look at the past shows that it does not matter significantly who sits in the White House for financial markets, that are mostly driven by macro and micro realities. 

But, does politics matter when it comes to sectors?
Again, the answer is quite straightforward as illustrated by the two times-series which display the performances of various sectors during the Obama and Trump eras. The change of presidents made little difference to S&P’s sector return ranking.

  • Under Obama and Trump, the three best performing sectors were identical: consumer discretionary, technology and healthcare.
  • Also, during both administrations, the two worst performing sectors were financials followed by energy

This sector breakdown discredits conventional expectations, held at the start of the Trump presidency:

  • At the time, hopes were high in the financial sector that a wave of deregulation would boost returns. Yet, financials finished next to last, again.
  • With all of Trump’s promises to “make America great again”, bring manufacturing jobs home and impose tariffs on “unfair” competition, investors expected the industrial sector to thrive under Trump. However, industrials finished in sixth place, just as they did under Obama.
  •  With a former property developer in the White House, many expected a better performance from the real estate sector. Real estate, despite benefitting from extremely low interest rates, slipped from just short of the podium in the Obama years, to eighth place under Trump.
  • Big Tech, openly hostile to Trump, expected to suffer from a vindicative president unleashing regulatory hell on players, but not much happened.
  • Fossil energy returns were bad in the Obama years, but at least they were positive. In the Trump years, energy was the only sector to deliver negative returns; an unusual outcome under a Republican administration, especially one that proudly cut regulatory burdens for fossil energy extractors.

The first four points can be relatively simply explained by citing former President Bill Clinton’s “it’s the economy, stupid” i.e. meaning that long-term fundamental macro trends cannot be displaced. However, the last point concerning energy, is worth a more in-depth analysis, in particular from a sustainable investment standpoint:
 

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