Throughout this presidential election year, investors have heard plenty about which sectors could thrive and which ones could struggle depending upon which candidate wins the White House. Healthcare has gotten plenty of press as being potentially vulnerable in a scenario in a which Democratic nominee Hillary Clinton wins the presidency.
Exchange traded funds such as the iShares Nasdaq Biotechnology ETF (NasdaqGM: IBB) and the SPDR S&P Biotech ETF (NYSEArca: XBI) were hit last week following Clinton’s comments on Mylan’a (NasdaqGS: MYL) EpiPen prices. This was the third time over the past year that Clinton’s comments upended drug stocks. The presidential runner has repeatedly censured aggressive drug pricing. With most polls giving her a wide margin over Republican nominee Donald Trump, the markets are taking Clinton’s words more seriously.
However, some market observers believe another sector could also come under pressure if Clinton wins in November: Financial services, the S&P 500’s second-largest sector allocation.
“According to LPL Financial research, there’s a connection between the rising odds of Clinton clinching the election and banks’ performance relative to the S&P 500 suffering,” according to CNBC.[related_stories]
Looking at the fed-fund futures, options traders placed a 30% probability of a rate hike in September, compared to a 21% chance last Thursday. Meanwhile, the odds of a rate hike by the end of the year were close to 60%. That last statistic helped ETFs such as the Financial Select Sector SPDR (NYSEArca: XLF) and the Vanguard Financials ETF (NYSEArca: VFH) rally Monday.
Higher interest rates would help widen the difference between what banks charge on loans and pay on deposits, which would boost earnings for the financial sector.
SEE MORE: Bullish Signs for Bank ETFs
Financials have been underperforming this year as an extended low-rate environment weighed on the sector’s earnings outlook. For instance, XLF is only up 2.3% so far this year, compared to the S&P 500’s 7.7% gain.
John Canally, chief economist strategist for LPL Financial, grants that a rate increase from the Federal Reserve would help financials, “I think having Mrs. Clinton as president would likely be a drag [for the financial sector],” reports CNBC.
For more information on the banking sector, visit our financial category.
Financial Select Sector SPDR
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.