Detailing market movements can be akin to chasing a moving target. But it is worth noting that on Wednesday morning, following Tuesday’s result of the second round of the Georgia Senate, the market was reacting to many changes – from tax policy to company supervision, to health and the environment. – that could occur.
From an industry standpoint, the immediate winners and losers appear to be broadly aligned with the expectation of which parts of the market will benefit from Democrats’ control in the House, Senate and White House.
The sectors with the best performance on Wednesday morning were finance, clean energy, health and materials, measured here by the performance of the SPDRs of the selected sector: o Selected financial sector SPDR fund (XLF) had a 4.6% increase at the beginning, the Energy Selection Sector SPDR Fund (XLE) increased 4.2%; and the SPDR Material Selection Fund (XLB) rose 3.6%. For perspective, the SPDR S&P 500 ETF Trust (SPY) rose 0.9%.
S&P 500 in record highs
What is behind the movements
Higher interest rates and conversations about large infrastructure spending are supporting finances and materials. There is a narrative that also circulates about a so-called reflective trade that supports these sectors linked to the reopening of the economy. Energy is a more complex story, in which some search for value has supported this sector for a while, and now news of cuts in oil production in Saudi Arabia is further boosting the sector, so the strength seen Wednesday may have more to do with driving forces than the election itself.
The real winners related to energy, however, are only a small part of XLE – the names of clean energy. During his campaign, President-elect Joe Biden talked about a $ 2 trillion investment in clean energy during his tenure, driving ETFs like Invesco Solar ETF (TAN) more than 7% this morning; The iShares Global Clean Energy ETF (ICLN) rose more than 5%. These ETFs, and others in this segment, had a shock in their arms for the first time during the presidential debates in the fall, when they started talking about massive investments in clean energy, but the result on Tuesday brings a new air to the upward momentum. And all together, the news of the day was rising the tide of energy, raising all the boats.
The other side of the trade was technology. There is a renewed concern that a Democratic government will be stricter and heavier with the big tech companies, and that has weighed on the segment today. This could mean anything from antitrust actions to blocking future megatechnology mergers, as well as other regulatory actions aimed at major technology companies.
The technology – the longtime winner in recent years – may be prepared for a correction of some kind, but the election result has definitely cast a shadow over the sector, at least initially. O SPDR selected technology sector fund (XLK) fell 0.3% on Wednesday.
And finally, there is health. One of the sectors most sensitive to the political environment rose slightly this morning, with Selected Health Sector SPDR Fund (XLV) rising 0.9%. The prevailing market idea seems to be that the Democrats who control Congress and the White House will not bring any significant change to the industry, but as we have seen in the past, changes in leadership often lead to policy changes that impact this sector so it remains to be seen what that happens next.
Marijuana ETFs heat up
Outside sectors, an interesting pocket on the heels of the election was marijuana ETFs. The largest in the group, the ETFMG Alternative Harvest ETF (MJ), with nearly $ 1 billion in assets under management, rose 10% in the first trades. O AdvisorShares Pure Cannabis ETF (YOLO), an actively managed ETF, grew 8.77%. Marijuana stocks were hot.
Since marijuana is a controlled substance, companies involved in the sale and cultivation of cannabis are prevented from using the federal banking system, which is a major obstacle for an industry struggling to become dominant. The inability to use credit cards or banks insured by the FDIC for transactions has been a limitation for the sector, as well as an obstacle to investment. Democrats are expected to be more friendly to this industry, possibly opening the door to decriminalization at the federal level and access to investment in what is considered a part of the growing market.
Cinthia Murphy can be reached at cmuprhy@etf.com
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