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These sectors will get a boost if Clinton wins

Presidential nominee Hillary Clinton speaks at a campaign rally on October 24, 2016 at Saint Anselm College in Manchester, New Hampshire.
Robyn Beck | AFP | Getty Images
Presidential nominee Hillary Clinton speaks at a campaign rally on October 24, 2016 at Saint Anselm College in Manchester, New Hampshire.

Presidential campaigns and elections are market-moving events. So, I've been keenly watching campaigns since 1976 when I was about to launch my investment career. That's four decades, 11 presidential elections, most with similar themes and divisions.

But not this year. The Hillary Clinton-Donald Trump contest is one of a kind. And that makes me wonder whether some long-standing trends related to elections will continue.

It's been well publicized that the market's direction between July 31st and October 31st has been a reliable but not infallible predictor of who will win the election.

Well over 80 percent of the time, since the Roosevelt-Dewey race of 1944, when the market is up during those three months, the incumbent party wins, and when it's down, voters support a change.

At the end of last week, the S&P 500 was down about 1.9 percent since the end of July. If this decline holds through Oct. 31, the market would signal a Trump win.

I should point out, however, that in two of the three instances when the market predictor was wrong, in 1968 and 1980, a third party candidate was involved. (The third time, in 1956, a surprise geopolitical event – the Suez Crisis – occurred just before the election.)

So, with Libertarian Gary Johnson polling about 8 percent and Jill Stein of the Green Party at 2 percent, third party candidates could certainly frustrate the predictive powers of the market this time around.

"Clinton is a known commodity, and that makes markets comfortable. Plus, the economy appears to have more room to run in 2017, so the stock market should follow."

I also question whether Trump can win given his unpopularity with minorities. He needs an almost impossible percentage of non-minority Republican voters to offset the loss.

Moreover, independents are 42 percent of the electorate, the highest ever polled, and a key swing factor this year. That percentage dwarfs the 29 percent for registered Democrats and 26 percent for registered Republicans, and likely will decide the election.

Trump needs a lopsided majority of independents to have a shot at winning, and his ability to resonate with these voters, particularly with women, was never strong and now appears to have all but vanished with the release of a well-publicized lewd video and subsequent multiple accusations of sexual misconduct.

Thus, given all these factors, the election, even if the stock market stays negative for August, September and October, seems to be all but decided in Clinton's favor.

For investors, a Clinton presidency likely would be positive for hospital stocks but depress pharmaceutical and biotech stocks. Infrastructure and defense stocks have been strong in advance of the election given that they appear to be beneficiaries of increased spending regardless of who takes office.

Alternative energy is a clear winner given Clinton's commitment to substantially increase the installation of solar panels. She also has singled out coal as a relic. Meanwhile, banks are a question mark. There's been lots of tough talk, but it's questionable whether Clinton would make the regulatory environment worse. The coming moves in interest rates likely will have more impact on the direction of bank stocks than a Clinton win.

In short, Clinton is a known commodity, and that makes markets comfortable. Plus, the economy appears to have more room to run in 2017, so the stock market should follow.

If there is a plot twist in this election scenario, it could come from down-ballot races.

Most polling also suggests that the House is secure in its Republican majority even on the heels of the recent Trump-induced tarnishing of the party; the ability of the Democrats to pick up 30 House seats is remote. But the Senate certainly is up for grabs.

Our best guess, at this point, is for a Democratic president, a Republican House, and a Democratic Senate, which, historically, has been a supportive mix for the markets. Wall Street likes checks and balances in Washington.

Conversely, an unlikely sweep by the Democrats would probably send stocks tumbling.

Commentary by Debra Silversmith, the chief investment officer of First Western Trust.

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