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What Stock Market Is Saying About November Elections

Stock sectors that could do well if Democrats win in November have been outpacing those that might be in favor if Republicans get control of the White House and Senate, according to an index created by LPL Financial.

President Barack Obama and Mitt Romney
Jewel Samad | AFP | Getty Images
President Barack Obama and Mitt Romney

“The move towards Democrats started back in April and May,” said Jeff Kleintop, chief market strategist at LPL. But since the Supreme Court upheld health care legislation in June, it moved more dramatically in favor of the Democratic camp.

Kleintop said LPL analysts assigned major S&P industry sectors to both the Democrats and Republicans.

To track what the market has priced in for the Democrats odds of retaining the White House and Senate, they then divided the Democrats index by the Republican index.

An upward sloping line shows the market may be pricing in better odds of Democrats winning, while a downward sloping line shows better chances for the Republicans. (Read More: Guess Which President Has Been Best for Stocks?)

Democrats were assigned health care facilities; food and staples retailing; gas utilities; health care services; life sciences tools and services; construction materials; homebuilding and construction and farm machinery.

Republican sectors are coal and consumable fuelds; diversified financial services; oil and gas exploration; oil and gas drilling; managed care; electric utilities; specialty retail, and telecommunications services.

The outperformance of homebuilders has clearly helped the Democratic stocks. For instance, Pulte Homes , up 154 percent year-to-date, is the best performing S&P 500 stock so far this year.

“We’ve had more momentum in housing, and I think people are feeling a little wealthier that way,” said Kleintop. said the momentum in housing has helped the homebuilder stocks, a Democratic sector. Other homebuilders, like Hovnanian , Lennar and KB Homes are also up sharply. (Read More: Why Aren't Candidates Talking More About Housing?)

Even while domestic oil and gas production has increased dramatically in the four years that President Obama has been in the White House, Kleintop said the industry would be treated more favorably on a regulatory basis by Republicans. The energy sector, as a whole, is up 9.6 percent year-to-date.

Dividend plays, such as utilities and telecom names, are seen doing better under Republicans, since they would retain the Bush tax breaks on dividends. The S&P utilities sector is flat, up just 0.1 percent year-to-date.

Some analysts see a tax-related sell off if Republicans don’t win.

“I think the key for the election basically is the Congressional outcome, particularly the Senate, because the market is focused now on what happens with tax policy on dividends and capital gains. The market is looking for a Republican outcome,” said David Bianco, Deutsche Bank chief equity strategist. “If it gets one, I think the rally continues.”

Republicans also favor keeping the lower capital gains, as well as the dividend rate, that expire Dec. 31, unless extended, and Bianco expects a post-election selloff if Democrats retain control of the Senate.

Follow Patti Domm on Twitter: @pattidomm

Questions? Comments? Email us at marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Senior Commodities Correspondent and Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.