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- The stock market has largely cheered the prospect of a Biden administration and divided government, but certain corners outperformed while others continue to languish.
- Waning odds of tax hikes and new regulations helped tech, financial, and healthcare stocks to surge through a chaotic week.
- But those betting on energy stocks or the US dollar missed out on the market’s gains.
- Visit the Business Insider homepage for more stories.
Stock markets quickly warmed to the prospect of a Biden presidency last week. And just as with any major event, some sectors won out while others face new challenges.
President-elect Joe Biden emerged as the likely winner Friday morning after updated ballot counts in Pennsylvania and Georgia showed him surpassing President Donald Trump in the key battlegrounds. Though Trump hasn’t yet accepted defeat, Decision Desk HQ called the race in Biden’s favor on Friday and administration officials have hinted that a peaceful transfer of power will take place.
The stock market, on the other hand, began preparing for that outcome on Wednesday, leaping higher in anticipation of a divided government. While a Biden presidency may yield more peaceful trade relations and a higher likelihood of more economic stimulus, a Senate likely to remain Republican-controlled could block tax hikes and stricter regulation.
Stocks slowed their roll to close out the week after back-to-back post-election rallies. Strategists are now set to step back and assess how the week’s elections will affect risk markets and the economy in the years to come.
Here are the winners and losers of election week.
Winners
Possibly the biggest stock-market winners were tech stocks, if only for how much they have to lose.
The sector led market-wide gains on Wednesday and Thursday as investors viewed a likely divided Congress as protection against antitrust regulation. The S&P 500 tech index gained 10% through the week, extending the bullish narrative and further cementing tech giants’ elevated valuations.
Financial and healthcare stocks similarly gained as the specter of intense government scrutiny faded. The S&P 500 healthcare index gained more than 8% through the week as investors bet a split government would fail to pass progressive health-insurance reform.
A corresponding index of financial stocks returned roughly 6% on hopes that Senate Republicans can block a corporate tax increase.
In state elections, cannabis was a clear winner. New Jersey, Montana, South Dakota, and Arizona all legalized the recreational use of marijuana, rapidly expanding the addressable market for rapidly growing producers. Pot stocks continued to rally through the week after Biden emerged victorious, as Democrats have indicated they plan to decriminalize the drug at the federal level.
While such policy will likely take longer to implement, it hints at a bright future for the young industry.
Aurora Cannabis gained as much as 201% through the week, while peers including Tilray, Aphria, and Canopy Growth also rallied. The Horizons Marijuana Life Sciences Index exchange-traded fund, which tracks a basket of pot stocks, gained as much as 36%.
Rideshare giants Lyft and Uber also soared after Tuesday’s election results came in. Both firms fought hard to pass Prop. 22 in California, which allows gig-economy companies to continue classifying their workers as independent contractors and avoid offering the benefits that come with full employment. Uber leaped as much as 36% through the week, nearing a record high. Lyft gained as much as 41%.
Losers
While the broader market climbed as election results came in, energy stocks traded flat and badly lagged the rally. A Republican-controlled Senate will likely stave off the most progressive green-energy policies backed by the Biden presidency. Even though fossil-fuel stocks initially rose on Wednesday, they soon erased gains.
After rising nearly 4% on Tuesday, the S&P 500 energy index dipped and closed the week just below where it opened.
Meanwhile, the US dollar fell to its lowest level since March as investors turned back to the Federal Reserve to drive the nation’s economic recovery. Democrats and Republicans remain worlds apart with their respective stimulus proposals, essentially leaving the country to rebound without fiscal support since August. The economy will be less likely to quickly bounce-back, and inflation expectations will be pushed further into the future. The Fed has indicated it won’t raise interest rates until inflation steadily trends above 2%. So long as near-zero rates are in place, the value of the dollar weakens.
Additionally, the Fed may need to ease monetary conditions further to keep the recovery on track. Such efforts could add cash to the financial system and further dilute the dollar’s value. To be sure, a weaker dollar lowers the cost of importing, and President Trump has repeatedly called for a weaker dollar to improve the country’s competitiveness in trade.
Finally, the economic data releases that typically drive markets were largely ignored as election news dominated the media landscape throughout the week. Stocks soared on Wednesday despite ADP’s jobs report signaling a massive slowdown in hiring activity throughout October.
And when the Bureau of Labor Statistics’ monthly nonfarm payrolls report handily exceeded economist estimates, stocks still fell in Friday trading. Those looking to position according to labor-market data published throughout the week undoubtedly missed out on the market’s gains and fell prey to its declines.
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