Gill Capital Partners Post Election Update #1

We start this update with a deep breath… okay, now back to reality. The past 48 hours has been filled with non-stop headlines, dramatic predictions, and for some of us, several glasses of wine. So, what do we know? Well, with a handful of races still too close to call and vote counting still taking place, we do not yet have a definitive answer on who will become the 46th president of the United States. However, we do have some clues and insights into other races, including the Congressional races. What we’ve observed the past two days is that markets are moving based on what they believe will be the outcomes in the White House and Congress. We are going to attempt to provide clarity around why the markets are behaving the way they are; however, we are NOT making a prediction about the outcome of any race, nor are we expressing the political views of anyone at Gill Capital Partners.

Markets like a split government. At this point, it does not look like there will be a sweep by either political party. This means there will be gridlock in Washington, which markets seem to like. They are positioning around what the current vote count is showing: a Democratic White House and a split congress. It appears that they like what that means for legislation (or lack thereof); neither party will be able to push through new meaningful legislation without bipartisan support. Perhaps most significantly, the prospect of higher taxes has been effectively eliminated as a possibility, as any major tax reform would be dead on arrival in a Republican controlled Senate. Some speculative investors were waiting to invest before the election, seeking to avoid a tax-sale stock drop in the event of a “blue wave.” With that scenario unlikely, they have piled back in. Furthermore, under the scenario that global financial markets are currently pricing in, significant new regulation and policy actions are unlikely. Finally, probability of a split Congress has dramatically reduced the odds of another significant stimulus program. The market was betting on a huge second stimulus package and had priced in higher inflation and growth rates as a result. With stimulus in doubt, or at least likely to be more muted, interest rates have moved lower over the past couple of days, which is again good for equities - for now.

Here is how some specific industries and sectors have been behaving over the past couple of days.

Growth Stocks (Apple, Google, Amazon, etc.) -Technology is once again leading the charge. Why? With Republicans forecasted (by a very thin margin) to keep control of the Senate, the risk of significant anti-trust regulation and legislation towards big tech is significantly reduced. Also, the Fed reaffirmed yet again on Thursday that they will hold rates near zero for a long time, which is beneficial for high growth companies.

Healthcare Stocks – Shares of healthcare stocks jumped. Investors are betting that a divided government means that no significant changes will take place with respect to healthcare legislation.

Banks & Financial Stocks – With the prospect of continued low interest rates, we are seeing money rotating back out of banks and financials, as low interest rates create a difficult environment for banks to make money in their lending portfolios.

Many of the recent moves in the markets have been driven by fast moving speculative money. We would caution that it is still too early to draw definitive conclusions, and the range of possible outcomes is still wide, but in general, markets seem to like the idea of a split government and the ensuing gridlock. All eyes are on the election, and hopefully soon we will have more clarity. Once we get that clarity, investors’ attention will again be drawn to the global pandemic, which is, unfortunately, gaining momentum once again. However, that is a topic for another day.

We know the past few weeks leading up to the election, and this week in particular, have generated anxiety for nearly everyone. We are always available if you want to talk about what is going on, (which can be done with that glass of wine). More to come in the next few days as we gain more clarity.