Beyond the endgame

Nov 12, 2020 | Jay Zhang


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As a tumultuous U.S. election season draws closer to its final outcome, we look to the future for investment opportunities. What are the implications of a divided Congress for equity markets?

RBC DS-CURVE OF JETTY

Even with U.S. presidential election controversies still boiling, it’s not too early to think about potential equity investment opportunities as things simmer down.


Preliminary election results are pointing to a status quo Congress with Republicans holding the Senate majority by a slim margin, although control of the upper chamber could take until early January to sort out if two runoff races are necessary in Georgia. In the House of Representatives, Democrats are expected to retain control, albeit with a smaller majority. We think three sectors are likely to be the most impacted by power dynamics on Capitol Hill: Energy, Health Care, and Financials.


These sectors have been held back by election headwinds because market participants believed that all three would face challenges under a Blue Wave scenario. The thinking went that the fossil fuel industry would be confronted with a faster transition to greener energy sources and tougher regulatory schemes; segments of the Health Care sector— particularly pharmaceuticals—could face policy reforms that would constrain profits; and Financials could be vulnerable to additional regulations. In contrast, a gridlock scenario, in which control of government is divided between the political parties, would relieve pressure in these areas.

 

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