To say it’s been an interesting election cycle would be an understatement. We in the LPL Research department have been fielding many questions about potential policy implications depending on the election’s outcome, while looking for investments that may benefit from—or be hurt by—various election scenarios (for POTUS, as well as the House and Senate). We tackled this idea in a Weekly Market Commentary in August and continue to closely monitor the most politically sensitive industry groups, which are mostly in the financials, healthcare, and energy sectors.
One investment, however, has seemingly risen to the top of the “politically sensitive investments” list and that is the Mexican peso. Donald Trump has devoted a large portion of his campaign talk to revamping U.S. trade policy, and an overhaul of Mexican immigration policy (including building a wall) is the centerpiece of his platform. That means a Trump victory may have significant negative effects on trade with our southern neighbor that could potentially harm the Mexican economy.
So what does this peso relationship mean for U.S. investors? For those without investments in Mexico, it may not mean all that much. Ironically, a weaker Mexican peso helps make Mexican exports cheaper to foreign buyers all else equal, offsetting at least some of the potential drag from reduced trade. But for those who are trying to assess prospects for November 8, it means a lot. The polls and the recent move in the peso [Figure 1] seem to suggest increasing odds of a Clinton victory (we use PredictIt.com as a market-based source of election odds). With just 24 days until Election Day, the peso is a currency to watch.
For suitable investors looking for potential election trades, the peso may be particularly sensitive to November’s outcome. But if currencies aren’t your thing, then perhaps consider the politically sensitive financials, healthcare, or energy groups. We see Trump as possibly more positive for financials and energy, whereas healthcare is more of a mixed bag. Like Clinton, Trump has stated he would like to reduce drug prices (potentially through re-importation or government negotiation). And should the Affordable Care Act be overhauled under Trump (we see full repeal as extremely unlikely), certain healthcare industries that benefit from the broader base of insured patients, such as hospitals, for example, might be hurt.
Look for more on the investment implications of the election from us in the coming weeks.