The market has been very focused on the election as well as QE2, counters Dan Niles of Alpha One. On Wednesday the market will probably get a pop - but in my opinion it's a last pop. After that I expect the market goes back to trading on fundamentals and away from the macro risk-on and risk-off trade.
TRADE THE VOTE: ENERGY
Among the Wall Street hotspots, perhaps none was more closely watched than energy sector, which outpaced the rest of the market on hopes of a GOP sweep.
How should you position?
This is probably the space that benefits most from a GOP win, explains Dan Clifton of Strategas. A Republican win could change rules governing drilling permits, nat gas regulations, tax increases and a delay of emission rules. All of those are powerful drivers for the energy space.
I think oil challenges it’s 2010 highs in the near-term, says Joe Terranova. I’m not sure this is because of the election so much as increased consumption from industrialized world. I’d play it with integrated names such as Occidental or Hess as well as the oil services names.
I’m bullish BP , adds Karen Finerman. But this isn’t an election play. I just think their business starts to move back to normal.
I’m on the other side of these trades, says Steve Cortes. If oil breaks above $85 and sustains that level for a few days I’d turn bullish but as far as I’m concerned oil is trading in a range between $80-$85 and ultimately I expect it breaks lower.
TRADE THE VOTE: UTILITIES
Also in focus this election season were the utility stocks, with investors driving these big dividend payers higher on a possible compromise over a dividend tax cut.
How should you position now?
With a 39.6% tax rate on dividends, the dividend tax is going to make a big difference, says Dan Clifton of Strategas. And utilities are also impacted by EPA rules. Both of these factors are powerful catalysts for this space
TRADE THE VOTE: FINANCIALS
Wall Street is also closely watching the outcome of the midterm elections due to its likely impact on the banking sector.
How should you position?
I think financials are a buy and I’m long JPMorgan , reveals Brian Kelly. If we’re going to have an economic recovery - and it seems the Fed is committed to making that happen – the financials have to participate. Capital must flow through the economy for a recovery and as a result I think valuations in the financials are attractive.
I also like financials, adds Karen Finerman.
It was troubling that the money center banks and small bank stocks didn’t rally Tuesday, on an otherwise pretty positive day, counters Steve Cortes. I can’t get excited by these names. However on a pullback I’m a buyer of brokers such as Goldman, Morgan Stanley and the exchanges. They’re trading very well.
Looking for more ideas about how to trade banks. According to Ed Groshans of Height Analytics, if Republicans win the House some financials win while others lose. Here’s his list.
Financials Post-Election: Winners
- Money Center Banks,
- Payment Networks,
- Mortgage Insurers
Financials Post-Election: Losers
- Community Banks,
- Credit Cards,
- Consumer Finance Companies