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Stocks that would gain if Trump won are starting to turn

Republican presidential candidate Donald Trump applauds the crowd as he speaks to supporters about his Immigration Policy during a campaign rally on August 31, 2016 in Phoenix, Arizona.
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Republican candidate Donald Trump is catching up in the polls, and stocks that would favor a Trump victory are showing the same thing.

They are no longer lagging as much as they were just a few weeks ago.

"Stock sectors that reflect a Clinton victory have been under-performing," said Dan Clifton, head of policy research at Strategas.

A CNN/ORC poll Tuesday showed Trump leading Democrat Hillary Clinton by 45 percent to 43 percent. "That's important because she was winning by 8 in that poll after the Democratic convention," said Clifton.

(In the charts below, "LHS" and "RHS" indicate left-hand side and right-hand side.)

Clifton created a portfolio for each party, to serve as a sort of diagnostic tool for the election. The Trump portfolio is heavy on defense, energy and financial stocks. He structured a portfolio for a win by Democrat Hillary Clinton with quite a few infrastructure names and healthcare stocks that would benefit from continuation of the Affordable Care Act.

"The infrastructure stocks which have been up a lot all year have started to underperform. That's a proxy for Hillary," said Clifton.

Some of the stocks that would favor Clinton, like infrastructure, or the financials for Trump, began signaling a change around Aug. 15 when the S&P 500 peaked at its all-time high. That was around the time that Trump changed his election team and strategy, Clifton noted.

"The Democrat portfolio is outperforming by 3 percent year-to-date, so it's saying Hillary has a slight advantage, but the portfolio had been up by 10 percent," he said.

An earlier turning point came on July 5, when the FBI released its findings on Clinton's emails. Since that time, Clifton's Republican portfolio began to outperform.

Trump is associated with infrastructure as well, but Clifton said that if he wins, it could mean a Republican sweep and the GOP is more concerned about immediately tackling tax reform, so a smaller infrastructure plan is likely under Trump.

Clinton is most closely aligned with health care and biotech stocks, and the biotechs have seesawed with Hillary rising and falling in the polls, he said. But both candidates' portfolios include health care names.

The Clinton portfolio contained Mylan because of its cost-saving generic drugs. But Mylan stock was crushed late last month because of Clinton's criticism about its pricing of the live-saving allergy medicine EpiPen. The Trump portfolio, on the other hand, holds Amgen, Celgene, and Pfizer. A Republican win could take pressure off the concerns about drug price regulations, and Pfizer also would benefit if there is a Republican win and a tax deal on repatriation of profits.

"As her probability of being elected goes up, biotech stocks underperform the S&P 500. What's been happening as her probability goes up, biotechs go down, and as her probability goes down, biotech goes up. It's been a roller coaster ride throughout the election," Clifton said.

Clifton assigned Trump a broader group of diversified financials, like regional banks, Morgan Stanley and AIG. He did not include other major banks, which both parties have said could be broken up.

The financials have done well, helping the Republican portfolio. "You're seeing those stocks really catching a bid. A lot of this is anti-Hillary stuff. She's talking about a financial transaction tax," he said. The Democrat's financial names include insurers AON, Marsh and McLennan, Berkshire Hathaway and Welltower, a health care REIT.

He said Trump is more pro-defense, though both candidates would be good for the sector.

The Republican portfolio:

Cifton said that if Trump starts to lead, there could be a market selloff, so he has included a Short S&P 500 ETF and long volatily VIXY.

Health Care Alexion Pharmaceuticals, Vertex, Amgen, Celgene, Pfizer, Boston Scientific, Express Scripts

Defense Lockheed Martin, General Dynamics, Raytheon, Cummins, Textron

FinancialsIntercontinental Exchange, AIG, Navient, Discover Financial Service, BB&T

Energy – Consol Energy, Devon Energy, Baker Hughes

HousingToll Brothers

For-Profit EducationDevry

Immigration Reform Geo Group, Tetra Tech

Minimum Wage Chipotle


The Democratic portfolio:

A Clinton victory is 86 percent correlated to the S&P 500, and a Clinton win represents the status quo, according to Clifton. The Clinton portfolio is long the S&P with a holding in S&P 500 SPDR ETF SPY.

Health Care – HCA Holdings, Universal Health Services, Centene, Aetna, Mylan, WellCare Health Plans, Dentsply Sirona, Cerner

Infrastructure – Vulcan Materials, Quanta Services, Granite Construction, Jacobs Engineering, Fluor, Nucor, Crown Castle

Alternative Energy NextEra, First Solar, SolarCity

Financials - AON, Marsh McLennan , Berkshire Hathaway, Welltower

Municipal Bonds SPDR Nuveen Barclays Municipal Bond ETF, TFI, iShares National Muni Bond ETF MUB

Defense/Export Bank – Boeing, L-3 Communications

Consumer Discretionary - Dollar General

Consumer Staples Tyson Foods

Railroads – Kansas City Southern