Market Insights: Does the Stock Market Want Trump to Win?

Macroeconomic and Market Developments:

• Stock markets in North America were slightly lower this week. The TSX Composite was down roughly 0.9%, whereas in the US, the S&P500 fell roughly 0.6% and the Dow fell roughly 0.95%.
• Oil prices were mixed this week with Canadian WCS staying flat at approximately $30, whereas US WTI was down about a dollar to approximately $40/barrel.
• The Canadian dollar gained slightly this week, rising to 76.1 cents from 75.8 cents last Friday.
• Gold slipped somewhat this week, dropping from 1,935 to $1,904.
• This past weekend, US based Altice USA and Canadian based Rogers increased their joint bid for Quebec company Cogeco and Cogeco Communications to $11.1 billion. However, the controlling Audet family has reiterated that it does not plan on selling.
• On Monday of this week, ConocoPhillips agreed to buy U.S. shale oil producer Concho Resources Inc. for US$9.7-billion, as the energy sector continued to consolidate amid lower fuel prices and demand. The deal swaps 1.46 shares of ConocoPhillips for each Concho share, which only amounted to a premium of 1.5% over its previous close price on Friday.
• Topaz Energy Corp (TPZ) completed their IPO this week and began trading on the TSX on Wednesday. Topaz was a spinout company from Calgary-based Tourmaline Oil Corp. The issue price was $13.00 and the shares finished the week at $13.40.
• The Trudeau Liberal government announced on Thursday said that it will provide $100 million from its Strategic Innovation Fund over four years to accelerate the development and use of technologies to lower the oil and gas industry's environmental impact. The money will be provided to the Clean Resource Innovation Network who will aim to use the investment to support research projects to reduce the sector’s greenhouse gas emissions by 100 megatons by 2033.
• On Thursday, the US Food and Drug Administration approved the antiviral drug remdesivir as a treatment for the coronavirus. The drug is a product of US company Gilead Sciences (GILD). However, a study coordinated by the World Health Organization and released earlier this month, had indicated that the drug had “little or no effect” on death rates among hospitalized patients.
• The final US presidential debate was held on Thursday evening, just 12 days before the November 3rd election. Whereas the event was more orderly and subdued that the first debate, both candidates didn’t hesitate to throw punches on the topics of COVID, personal finances and a national minimum wage.
• The total global COVID-19 cases stands now at roughly 42.0 million this week, with the total death toll at 1.140 million. Total cases in Canada are at 209,148, with active cases at 23,481. Alberta currently has 3,519 active cases.
• For a deeper dive, the US investment company First Trust has put out a US COVID-19 Tracker: COVID TRACKER

Charts of the Week:

With the election just one and a half weeks away in what is predicted to be a hotly contested Presidential battle, we want to share with you how markets have tended to perform in both case scenarios. The title of these comments likely caught your eye, but the data does indeed show that since 1950, markets have performed better the year after an election when the incumbent President wins reelection.

From the standpoint that if an economy is doing well, it would make sense that a re-election is simply an affirmation of that view, and that likely stocks will also tend to continue to perform well. If we look at when Reagan, Clinton and Obama were re-elected, stocks gained close to 30% on average the following year. Overall, the average return has been close to 10% with positive results 71% of the time, but 100% of the time since 1972.

On the other hand, when there has been new leadership, markets have returned on average about 5% the following year with a 50% positive results rate, although this positive rate has been 80% over the last five occurrences in the last 40 years.

Source: @RyanDetrick

In our view, the big positive to take from all of this is that over the last 40 years since 1980, in the last 10 occurrences either way, the market has returned on average 14.5% in the year following an election with a positive results rate of 80%. That average return is well above those for all calendar year return periods. While past performance is not indicative of future results, this can lend optimism to a world stage that seems very unsettled.

Sources: CNBC.com, Globe and Mail, Financial Post, Government of Canada, Government of Alberta, Johns Hopkins, oilprice.com, Canaccord Genuity, Bespoke Investment Group, LPL Financial LLC, FactSet, MarketWatch