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Outcome of U.S. Presidential Election Will Determine Which Industry Stocks Are Likely to Outperform and Falter Says School Study

September 27, 2016
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Health care, real estate and construction stocks will likely outperform the overall market over the next year if Hillary Clinton wins the U.S. presidential election, while sectors such as mining, firearms, defense, and tobacco will likely underperform and depreciate.  On the other hand, if Donald Trump wins, those industry stocks likely to benefit from a Clinton win falter, while the second group will do better. This according to new research from the School’s finance department.  The findings, to be published in the Review of Financial Studies, also show that the greatest impact of either win will take place in the quarter immediately following the election.

The study, based on past returns from 1939 to 2011, found that during that period, in years when a Democratic president was elected, stocks in certain sectors including health care, real estate and construction, outperformed the market by about 6.4 percent.  Stocks in sectors such as mining, firearms, defense and tobacco underperformed the market average by about 0.8 percent per year after those elections. On the other hand, when a Republican president was elected in this same period, stocks in those sectors outperformed the market by about 5.3 percent, while health care, real estate and construction stocks underperformed the market by about 4.3 percent over the following year

“Given the results, a smart investor could actually hedge the market,” said Alok Kumar, the School’s Gabelli Asset Management Professor of Finance, who conducted the study with Jawad Addoum at Cornell University.  “By knowing which industries will do well and which will falter, investors can identify a better mix for their portfolios.”

The full study can be found at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2169360

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