Money Rehab with Nicole Lapin - Decoding "Blue Stocks" and "Red Stocks": the Industries That Trend with Politics

Episode Date: July 4, 2024

Happy 4th of July, Money Rehabbers! If you're like Nicole, as you celebrate today, you might also be thinking about the elephant in the room: the election. Nicole unpacks how the value of the dollar reacted to the Biden-Trump debate last week, and which industries tend to rally when a Democrat is in the White House, and when a Republican is in the White House. All investing involves the risk of loss, including loss of principal. Brokerage services for US-listed, registered securities, options and bonds in a self-directed account are offered by Public Investing, Inc., member FINRA & SIPC. Public Investing offers a High-Yield Cash Account where funds from this account are automatically deposited into partner banks where they earn interest and are eligible for FDIC insurance; Public Investing is not a bank. Brokerage services for alternative assets are offered by Dalmore Group, LLC, member FINRA & SIPC. Brokerage services for treasury accounts offering 6-month T-Bills are offered by Jiko Securities, Inc., member FINRA & SIPC. Banking services are offered by Jiko Bank, a division of Mid-Central National Bank. Securities investments: Not FDIC Insured; No Bank Guarantee; May Lose Value.  Brokerage services for Regulation A securities are offered through Dalmore Group, LLC, member FINRA & SIPC. Risks at public.com/disclosures/alts-risk-and-conflict-of-interest-disclosure See public.com/#disclosures-main for more information.

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To get started, visit bofa.com slash newprosmedia. That's B-O-F-A dot com slash N-E-W pros, P-R-O-S, media. Bofa.com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. Happy, happy birthday, America, and happy Fourth of July, money rehabbers. I hope you're lighting sparklers, barbecuing, setting up to watch the July, money rehabbers. I hope you're lighting sparklers, barbecuing, setting up to watch the fireworks, all of the perfect tried and true ways to celebrate the 4th. Today is a day to be grateful for all things that make America an amazing place to call home. It's also the day that a lot of us reflect on the state of the union. Again, there is a lot

to be grateful for, but I also can't blame people who are thinking today even a little bit about the ways that the country could be better. And this isn't a partisan thing. Both sides of the aisle feel like there's room for improvement. So we're all united, at least in that. We can all celebrate the progress while also acknowledging that there is more to be done, especially when it comes to our money. There are countless issues at the intersection of government and money that impact us. Everything from student debt forgiveness to how much we get taxed to how much Social Security will actually get in retirement. How some of these big questions and policy issues unfold will really depend on who's sworn into the

Oval Office in November. Of course, this is at the forefront of the national mind right now, because last week we heard the debate between President Biden and former President Donald Trump, and I think it's safe to say that the overall vibe check after that debate was disappointment, especially for the Dems. To be clear, I am not afraid to talk politics with the best of them, but that's actually not what I'm going to do today. Instead, in honor of the 4th, I'm going to talk about the intersection of elections and the stock market. I'll start by unpacking how the economy reacted to the debate and then share how the stock market reacts on election day when a Democrat wins versus when a Republican wins. Okay, so what happened last week?

The value of the dollar scooched higher after Trump was widely perceived as the victor of the debate. The Bloomberg gauge of the US dollar edged up about 0.2% after the debate, continuing a six-week streak of gains. It might not sound like a lot, 0.2%, but it is in the context of the most important currency in the world. So why did the dollar rally after Trump's debate performance? It all boils down to the platform he laid out during the debate. The economic indicators move to reflect Trump's stated platform because he was seen as the winner of the night. In the debate, Trump reaffirmed his intention to impose 10% tariffs on imports if he wins, which investors believe could feed into inflation.

As we now know with inflation, there's a domino effect in the financial world that greatly affects interest rates and the value of the dollar. We've been expecting the Fed to cut interest rates, but if Trump is elected and opens the tap on inflation, then it couldn't make financial sense for the Fed to cut interest rates. Higher interest rates can also make the dollar more attractive to investors looking for better returns, which then strengthens the currency. This shift in the dollar reflects the specific promises Trump made in the debate. But there are general patterns in the behavior of the stock market that play out when a Democrat is elected office. And then there are separate patterns when

a Republican is elected office. And this isn't just Trump or Biden. This is any Democrat or Republican president. It's helpful to know these trends because you'll be able to decode market trends and even take advantage of them in November. When a Democrat is elected, there are four industries that tend to rally. Number one, renewable energy. Companies involved in solar, wind, and other renewable energy sectors tend to perform well due to the expected support for green energy initiatives. These are companies like First Solar, ticker symbol FSLR, and NextEra Energy, ticker symbol EE. Number two, healthcare. Companies in the healthcare sector like United Healthcare Group, ticker symbol UNH, and HCA Healthcare, ticker symbol HCA, especially those

involved in managed care and hospital services can tend to benefit from anticipated expansions in healthcare coverage. Number three, technology. The tech sector often performs well due to expected continued support for innovation and technology advancements. We know the biggies in tech right now, NVIDIA, ticker symbol NVDA, Microsoft, ticker symbol MSFT, Apple, ticker symbol AAPL, Nvidia, Microsoft, Apple, and a whole lot more. Number 4. Infrastructure. Companies involved in infrastructure and construction may also benefit from increased government

spending on public works projects. So these can be companies like Caterpillar and Vulcan Materials . symbol CAT, and Vulcan Materials, ticker symbol VMC. On the other side of the aisle, here are four industries that tend to rally when a Republican is elected. Number one, defense. Defense contractors and military technology companies like Lockheed Martin, ticker symbol LMT, and Northrop Grubman, ticker symbol NOC, tend to see gains due to expectations of increased defense spending. Number two, financials. Banks and financial institutions may benefit from anticipated

deregulation and tax cuts. We know these guys, JPMorgan Chase, ticker symbol JPM, Goldman Sachs, ticker symbol GS, and so on and so on. Number three, energy. Traditional energy companies, including oil and gas producers, often perform well due to the expectations of less stringent environmental regulations. Unlike renewable energy companies that rally under blue leadership, the ExxonMobiles and the Chevrons of the world rally under red leadership. Number four, industrial. Industrial companies like General Electric, ticker symbol GE, and 3M, ticker symbol MMM, can also benefit from policies favoring manufacturing and business investments.

This is a perfect, perfect example of how expectations move the financial world. These trends are, yes, totally based on historical Democratic and Republican platforms, but the parties aren't so binary. There are Democrats who love the financial industry. There are Republicans who love tech. Biden, for example, has been president during a period of war all over the world, and these wars have certainly caused defense stocks to rise. So even though Biden or Trump might not necessarily have platforms that align with giving the green light to industries that I just mentioned, investors expect companies within these industries to be affected by the party that's in power. And sometimes it's just that expectation

alone that can be enough to move the market. But let's not forget the broader picture here. The stock market isn't just a casino where bets are placed on political outcomes. It's a complex system influenced by countless factors from corporate earnings to economic data to geopolitical events and technological advancements. While politics certainly play a role, it's just one piece of the puzzle. So as you go on your merry, merry way on this 4th of July, let's also be grateful that we live in a country with so much financial opportunity. The U.S. economy is resilient. We have never not recovered from a single recession or depression in U.S. history, which cannot be said of every country. Despite the political noise and market fluctuations, the U.S. has a long history of overcoming challenges and emerging stronger.

Whether you're a seasoned investor or you're just starting out, keeping a long-term perspective can help you navigate short-term volatility. For today's tip, you can take straight to the bank. Another way to show your country some love today is to invest in U.S. Treasury bonds. But this investment move isn't about showing some school spirit. Treasuries are a low-risk investment, and at the time I'm recording this, one-year treasuries are over 5% right now. So if you're thinking about diversifying your portfolio, look into whether bonds make sense for your financial goals right now. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie.

Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.