Election Baskets and Election Trades
Trading the election is going to be chaotic. Here are some ideas
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Lots of dramatic polling this weekend has dramatically changed the calculus for the election. It now looks like we may go into Tuesday as close to 50/50 as we have in a very long time.
Meanwhile, last week saw the most significant outflows of institutional money from the markets since 2010.
I’ve zoomed in a bit on that period (September 2010). You can see it was a rocky period for equities.
Checking in on the Put/Call premium, we can see it sustained at elevated levels last week.
All of this points to a well-hedged market heading into the election. Prediction markets pricing it at 50-50 should further limit volatility.
That said, I’m still expecting plenty of volatility to go around.
Without further ado, let’s go over some election trades.
Election Baskets
Besides the volatility, one of the most challenging things about trading an election is not knowing which part of a candidate’s position you should believe.
Take Trump, for instance. If you take his word that he will slap 60% tariffs on all imports from China, then you would worry massively about inflation. Trump is easier to forecast because he has served four years as President. We have some sense of what he would do because we can see what he has done before.
Kamala is uniquely challenging. In 2019/2020, she ran on a very far-left platform. Then, she served in the Biden administration, which largely represented a pivot to the center for her. Now, as part of her campaign, she has become even more centrist while maintaining her populist roots.
If she wins, which Kamala will enter office? Will she be unburdened by what has been and stick with her newfound centrism, or will she return to her roots?
Meanwhile, Trump is simply chaotic by nature.
I decided not to try to guess what they would do but to let the market tell me.
To that end, I did a bunch of correlation work, trying to ferret out what sectors and specific names had traded in a way that implies they are sensitive to each candidate’s chances of winning.
Here are a few of those ideas, curated by me, to ensure that there are solid reasons to believe the correlation story and also that they are solid companies.
Trump Wins: Buy Biotech (UTHR, ITCI, IONS and maybe CRNX)
There are lots of reasons to believe that Trump will be good for biotech companies. He is very America-first, so US-based biotech companies will potentially get tailwinds from stifled competition. He talked tough on combating high drug prices in 2016 and 2020, but did little to follow through on it.
Trump generally favors deregulation, and his Operation Warp Speed showed a willingness to push drug approvals aggressively.
Trump’s previous budget proposals raised or maintained government medical research funding.
Investing in biopharma companies is risky, particularly ones with products awaiting approval or in the early stages of hitting the market. I’ve listed these companies in order of my perceived risk, from lower to higher.
$UTHR is a profitable and growing biopharma company. It offers five therapies on the market today, all in the space of vascular health. The company's stock has rallied significantly this year, and its EPS has grown at about a 20% YoY rate.
$ITCI has a single bipolar drug on the market in the United States. It is not profitable, and most analysts don’t expect it to be until at least 2026. On the positive side, it beat EPS estimates by 16% last quarter and almost 50% the quarter before. It has a compelling growth story and should be able to maintain or improve its pricing power under a Trump administration.
$IONS has 5 drugs available in major markets, but it is not profitable. IONS had a blowout quarter last quarter, beating EPS expectations by 71.5%. The previous quarter had been good, too, with an upside EPS surprise of almost 20%. Like ITCI, IONS should be able to maintain and improve its pricing power under Trump, and it has a compelling growth story.
$CRNX is a more difficult stock to navigate because their product is not on the market. They are working on therapies for endocrine disorders and cancer. They are well-liked by pharma analysts, with a 93% buy recommendation. Needless to say that without an approved product, they are losing money and will continue to do so for the foreseeable future. Still, they represent an excellent high-upside play on the space that has traded closely with Trump’s odds. Be cautious.
Kamala Wins: Buy Managed Care (UNH, MOH, CNC)
Trump has expressed great disdain for the Affordable Care Act, whereas Kamala has been very vocal in her support of it. She even proposed plans for a public option in her 2019 campaign.
Managed care companies thrive from more government intervention in healthcare. They want lower drug prices and more money for public care. It’s no wonder that these managed care companies are watching Kamala’s prospects closely.
$MOH and $CNC are both companies with strong financials. They focus heavily on serving low-income people receiving Medicaid and are extremely well positioned to thrive with a Kamala White House.
The $UNH growth story is a little less compelling, and they have focused more on serving elderly Medicare-eligible customers. Still, analysts are expecting good things for UNH, and they are likely to outperform with Kamala as President.
Trump Wins: Buy Brokerages (GS, IBKR, SCHW)
These three brokerages are heavily reliant on trading revenue. Trump’s tax plans and strong anti-regulation stance on financial services companies will set them up for success.
Kamala Wins: Buy Regional Banks (CFG, CMA, RF, CBSH, NYCB)
It’s become a common talking point that Trump’s policies are expected to result in higher rates because of inflation or higher growth.
Meanwhile, Kamala is talking about giving a $25k credit to first-time home buyers.
These banks have a heavy load of real estate loans on their balance sheets. They are especially exposed to commercial real estate loans, many of which are underwater and have owners waiting to refinance. Lower interest rates would help the commercial real estate sector a lot, and these banks will be positioned to capitalize on that.
One Off The Wall idea
Long Intel on a Trump win. Trump loves deals, and his love for deals often leads him to interventionist trade policy. Bringing semiconductor production back to the United States will be a high priority for the Trump administration.
Intel is the most significant domestic semiconductor fabricator, with only Texas Instruments coming close in size. Their major downside is that they are a disaster company whose ability to deliver modern semiconductors at scale is in question.
Intel hasn’t traded closely with Trump’s odds, which surprises me. I can very easily see a world where the Trump administration steps in to help Intel be acquired or provides them with some form of financial bailout.
Tuesday Comes
Tuesday is going to be a tough trading day. My advice: don’t overtrade without a good reason. Be careful with the data you consume.
Good luck!
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Disclaimer: The information provided here is for general informational purposes only. It is not intended as financial advice. I am not a financial advisor, nor am I qualified to provide financial guidance. Please consult with a professional financial advisor before making any investment decisions. This content is shared from my personal perspective and experience only, and should not be considered professional financial investment advice. Make your own informed decisions and do not rely solely on the information presented here. The information is presented for educational reasons only. Investment positions listed in the newsletter may be exited or adjusted without notice.