Investors Brace for Historic U.S. Election

We are finally here! The U.S. election is upon us Tuesday which means volatility for U.S. investors. Results from the election should mostly be known Tuesday night by around 11PM ET, although there is a slim chance a close race could drag out final results. Today markets are pricing in a Hillary Clinton victory after FBI director Comey cleared her again after reviewing newly discovered e-mails. Clinton victory or not, there is still the House and Senate balance in addition to various state ballot measures. Also, various sectors will be impacted on the results.

President

The Real Clear Politics average of all the polls shows Clinton with a 46.9 to 44.3 edge over Trump. However, the electoral college vote is what decides U.S. elections. While Clinton looks in good shape in the electoral map, there are 16 swings states: Georgia (16), Maine (3), New Hampshire (4), Michigan (16), Pennsylvania (20), Wisconsin (10), Utah (6), Arizona (11), Minnesota (10), North Carolina (15), Iowa (6), Virginia (13), Ohio (18), Nevada (6), Colorado (9), Florida (29).

Analysts at FBR Capital believe there are certain "bellwether" races that could give early indications on how the rest of the night will go. "In the presidential race, if Clinton wins two of the three - New Hampshire where polls close at 7:00 p.m. EST, North Carolina where polls close at 7:30 p.m. EST, or Pennsylvania where polls close at 8:00 p.m. EST, it becomes highly likely she will be President," FBR policy analyst Benjamin Salisbury said.

Trump clearly has some momentum going into the vote, so anything is still possible. Also, with the Brexit vote fresh in investors' mind, the populist allure of Trump could be underestimated by the polls. If Trump can turn Pennsylvania or Michigan from Blue to Red and hold Florida his chances significantly improve.

If Clinton wins, as expected, the burning question is if Trump will concede right away or contest the election.

Market Impact:

With a Clinton victory now mostly priced in, markets could see a modest 'sell the news' if she wins. If Trump wins, expect an initial 3-5% knee jerk sell-off which could be followed by dip buyers.

If Clinton wins, according to FBR, the following sectors could be impacted: Energy: positive for renewable energy stocks (FSLR, CSIQ, NYLD etc.), natural gas stocks (SWN, etc.). Financials: negative for money center banks (JPM, WFC, C, etc.), positive for regional banks (CMA, PNC, etc.), negative for asset managers (LPLA) and negative for student lenders (SLM), positive for housing (PHM, TOL, etc).

In Healthcare, according to Mizuho, a Clinton victory is seen as positive for Hospitals (HCA, UHS, THC), Post Acute Providers (KND, AMED), Other HC Services Providers (ACHC, AAC), Physician Services (MD, AMSG, EVHC, TMH), Clinical Labs (DGX, LH), according to Mizuho. In Specialty Pharma/Generics (AGN, ENDP, TEVA, MYL, VRX, etc.), the most positive outcome is a Clinton victory with a GOP House/Senate. However, a Clinton victory with a Democratic House/Senate would be 'very negative' for the sector. The same holds true for Drug Distributors (ABC, CAH, MCK), Retail Pharmacies (CVS, WBA, etc.), and PBMs (ESRX).

If Trump wins, according to FBR: Energy: would be positive for coal producers (CLD, CNX), independent refiners (VLO, etc.), offshore drillers (RIG, etc.), oilfield services (HAL, etc.), and E&Ps with greater oil exposure (APC, OXY, FANG). Financials: positive for regional banks (CMA), positive for asset managers, positive for broker/dealers (AMTD, SCHW, ETFC), positive for student lenders (SLM).

Further in healthcare, a Trump victory with a GOP House and Senate is also seen as 'very negative' for Hospitals (HCA, UHS, THC)), Post Acute Providers (KND, AMED), Other HC Services Providers (ACHC, AAC), Physician Services (MD, AMSG, EVHC, TMH), Clinical Labs (DGX, LH), according to Mizuho

Senate

Republican's currently control the Senate 54-46. Democrats would need to see a net gain of 4 to get a 50-50 split. The party with the Presidency would break the tie. There are 8 toss-up Senate races: Indiana, New Hampshire, Missouri, Pennsylvania, Florida, North Carolina, Wisconsin, and Nevada.

FBR believes Democrats have 52% chance of taking the Senate, although this is down from 60% in October.

House

In the House, 435 seats are up for election. The GOP currently holds a 60 seat majority. While Democrats are expected to make gains in the House, they are not seen gaining the 30 needed to take control of the House.

Proposition 61 (CA)

CA Prop 61 seeks to prohibit the state from buying any prescription drug at price over the lowest price paid for the drug by the VA. The vote is said to be close and polls don't close until 8:00 p.m. PT.

Marijuana

The legalization of recreational is on the ballot in Arizona, Massachusetts, Maine, California and Nevada. Meanwhile, medical marijuana use is on the ballot in Arizona, Florida and North Dakota. "If voters approve recreational use, 25% (up from 5%) of the U.S. population will be living in states where recreational marijuana use is legal on the local level," FBR notes.

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