INSUBCONTINENT EXCLUSIVE:
NEW YORK: Buy the dollar but sell FAANGs, buy real estate and machinery, but sell the overall market
Or, do nothing at all.
Investors heading into Tuesday's US congressional elections are trying to fathom how best to predict the outcome and
profit from it.
After two years of wielding no practical political power in Washington, the Democratic Party faces a strong chance of
winning control of the US House of Representatives in next week's election, with Republicans likely to keep the Senate.
These are some of
the ideas that analysts, strategists and traders have:
BUY ANY DOLLAR DIPIf the greenback drops against other currencies on the election
result, Citigroup says it should be bought
"Midterms are less likely to mark a major turning point for USD than some investors fear," Citi analyst Todd Elmer said in a report.
There
is no strong historical relationship between midterms and the path of the US currency, making a Democratic House victory unlikely to thwart
the dollar's rally, Citi said.
FAANGs COULD FALL ON DIVIDED CONGRESSOne policy initiative that looks viable under a divided Congress is
increased regulation of social media companies, said Oliver Pursche, chief market strategist at Bruderman Asset Management in New York
"That is an area where both the Trump administration and Democrats agree," he said
"We expect that to occur in 2019." If that happens, shares of Facebook, Twitter and Alphabet, which have come under increased pressure this
year, could have more downside.
BUY CONSTRUCTION STOCKSDryden Pence, chief investment officer of Pence Wealth Management in Newport Beach,
California, is looking to buy construction-related stocks, as he anticipates that an infrastructure bill, one of Trump's agenda items, will
come to pass regardless of which party controls Congress
"For infrastructure, the most important thing about the election is that it will be over," he said
Among the stocks Pence likes are United Rentals Inc, AECOM, Jacobs Engineering Group Inc and Vulcan Materials Co.
BUY REITS ON DEMOCRATIC
WINScott Crowe, chief investment strategist at CenterSquare Investment Management, a manager of real assets, said if the Democrats win the
House, it likely signals the end of tax cuts or an infrastructure bill for Trump ahead of the 2020 presidential election
If this happens, it would be good news for the 10-year bond yield, and "a lower 10-year bond yield is good news for REITs."
BUY MACHINERY
STOCKSAnalysts at Stifel see Trump quickly proposing a "Highway Bill" when the House takes office if Democrats win control of the lower
chamber That may lead to increased political rancor and Trump may take the high road of "the people's business" by proposing a
transportation bill, benefiting Caterpillar and Deere Co.
CUT EM FOR RED REPEATThose positioning for a further poll shift toward
Republicans should be prepared for emerging market weakness, wrote Michael Zezas at Morgan Stanley in a research note.
"The potential for a
stronger USD and increased leeway for further trade escalation would likely weigh on emerging markets risk appetite
Already cheap valuations would likely protect parts of EM, yet we think Asia would still be at risk due to trade linkages and previous
Our global EM strategy team suggests short KRW, SGD, TWD with PHP, IDR and INR also vulnerable."
EXPECT VOLATILITY TO FALLSome investment
strategists are expecting volatility to ease after the US midterm elections as the elimination of at least one uncertainty the market is
facing right now will give traders less reason to worry regardless of what the outcome is.
Parag Thatte, equities strategist at Deutsche
Bank in New York says: "Our trading desk thinks betting on volatility reducing after the election would be a good trade right now."
EXPECT
BIOTECH TO FALLIf Democrats take control of the House and Republicans continue to have an edge in the Senate, UBS Wealth Management analysts
say that among the areas where the president and Congress could find common ground are drug price controls and infrastructure spending; the
former could pressure large pharma and even biotech stocks lower, or limit their gains, while the latter could boost those in engineering,
construction and building materials.
DON'T BELIEVE THE POLLSBMO Capital Markets analysts Jon Hill, Ian Lyngen and Ben Jeffery wrote in a
recent note that many of their clients are skeptical of political polls on the congressional elections.
That skepticism suggests that
current valuations do not fully reflect the polls' expectations and Treasury yields may still move down if Democrats take control of the
House of Representatives.
The analysts also wrote that a potential error in the polls might not necessarily skew toward Republicans,
allowing for the possibility of a bigger Democratic win than is currently projected.
DO NOTHING"In our view, investors should avoid making
investment changes based purely on fears or speculation of election outcomes," said analysts at Wells Fargo Investment Institute.
It is more
important for investors to maintain and follow their longer-term investment plan, and await signs of action in Congress, they said
