The sturm und drang about the election is just about enough to make me stop watching television and turn off my Facebook feed… but it’s also generating some concern on Wall Street now, and as we get closer to what seems today to be an inevitable Democratic win in November there’s a lot of speculation about who will win and who will lose when it comes to the stock market… particularly because it appears that the market’s favorite outcome is probably in some doubt now.
The average investor seems to want stability and inaction from government — it’s commonly said that Wall Street roots for gridlock, so President Clinton plus a strong republican congressional majority is perfect for ensuring a lack of big changes… but the Republican Party is in such upheaval that what had for a long time been the most likely outcome is now in more doubt.
The reading of the investment tea leaves is what we’re focused on, of course, not political debates or discourse — so the latest little pitch for Tyler Laundon’s Small-Cap Confidential over at Cabot caught my eye when he made some guesses about what the winning sectors will be post-election… and also hinted at “one stock to buy now” that he think will do well regardless of who takes the White House.
His general assertion was that volatility would likely increase going into the election and leadership change, which has seemed logical for a long time but hasn’t really happened yet (the Vix index, which is just a measure of how much people are paying for options, is higher than it was last week but is still far, far below where it was in September, April or February), but he also noted that health care and financial stocks are generally the stocks that have done best when Trump’s popularity surges, while consumer discretionary and industrial stocks favor Clinton, perhaps because Clinton’s stance on trade is much friendlier to most companies that operate globally, and much more predictable.
And Laundon doesn’t mention it, but probably the strongest correlation that folks have identified between political polls and economic activity recently has been the impact of Trump’s poll numbers on the Mexican Peso — when his poll numbers were rising late in the Summer, the Peso fell against the US Dollar… when they fell after the first debate, the Peso strengthened a bit and bounced back a little more recently as his polling woes have continued. (A weak Peso is actually great both for Mexican exporters into the US and for Mexican workers in the US who are sending money home, ironically enough.)
But then he gets into his “who wins no matter what” bit…
“So where does this leave us? Are there any stocks that could do well regardless of who wins? I think so. Technology stocks are looking great. And it should come as no surprise that I like small caps.
“Small caps have two potential advantages relative to large caps during this election year. First, they tend to have lower international exposure, so they should be less impacted regardless of who’s in the White House. And second, their valuation is less expensive than large caps. Both of those factors suggest that small caps will post relative outperformance over the coming year. And given the strength in technology, it makes sense to me to focus on small-cap tech stocks.”
OK… and which small cap is it that he likes?
“There is one in particular that looks good to me right now. It’s a small-cap tech stock that sells software to regional banks, community banks and credit unions, all of which are expected to enjoy a better environment under either Trump or Clinton. And with interest rates likely to go up, banks should be able to generate greater profits, which can be invested back into critical software they need to compete in the digital banking age.”
There are quite a few technology companies who sell software and other solutions into the financial industry… so which one is he talking about? Here are our clues:
“This company has developed a virtual banking platform that supports dozens of different products. It lets account holders move securely and effortlessly between the digital and brick-and-mortar locations of their community bank or credit unions. Its platform was purpose-built to deliver a secure and consistent user experience ac