What's On Tap...

Super Tuesday

Once every four years we are graced with the primary process – a scene burgeoning with passionate supporters enthusiastically backing their chosen candidate – eventually narrowing the field to two who will go on to campaign for presidency. 2016 has been unique from other election cycles. We have seen an emergence of candidates with vastly differing viewpoints energizing the electorate through a media blitz that is nearly inescapable. Of the five who remain, we examine the high level talking points and muse on the industry specific impacts that a presidency of each might bring upon us:

Marco Rubio: The senator from Florida seems to be the best hope the GOP has for dethroning Trump as the nominee, but will need to put up a strong showing in his home state to hold on to any hope of a victory. Rubio has come out with a hawkish stance on foreign policy and has called for the repeal of Obamacare, though the finer details are lacking on both issues. According to his website, his business related intentions would include cutting taxes for small businesses to 25% and expanding the energy independence quest through domestic production of oil, natural gas, and coal. Given the ongoing weakness in commodities, any legislation that eases the barrier to entry in production would likely dampen any hope of a sustainable price increase.

Winners: Rubio has said he will bolster U.S. military spending thereby creating an opportunity in Defense related equities. In pursuit of ‘low energy costs’, commodity prices would likely continue to linger at these lower levels.

Losers:  While a popular talking point, an immediate repeal of the Affordable Care Act would probably create some uncertainty around the future of the Healthcare Industry. Easing regulation around energy exploration would likely be a negative for commodity prices.


Ted Cruz: The senator from Texas has cemented himself as the ‘constitutionalist’ candidate, having spent his career prior to politics as a lawyer and even having argued cases in front of the U.S. Supreme Court. His major talking points include a staunch pro-life / anti-abortion stance as well as a passionate view on the second amendment right to keep and bear arms (some may recall the ‘machine gun bacon’ viral video). Like Rubio, Cruz has talked tough on repealing the Affordable Care Act, though the details are skimpy. His economic viewpoints appear to be a Laissez-faire approach – one in which the private sectors ability to explore, develop, and trade would be free from government regulation. He has been a voice in the Senate for austerity and so we conjecture a Cruz presidency would also come with substantial cuts in the budget.

Winners: The Laissez-faire strategy mostly benefits the mega-conglomerates, as these companies with their deep pockets are best able to take advantage of any decrease in regulation. The deregulation of the firearm industry would likely usher in a boom time for these manufacturers.

Losers:  Infrastructure and alternative energy may get the raw end of any budget cut deal passed in the senate. Similar to Rubio, Healthcare equities may see some instability with the repeal of the Affordable Care Act.


Bernie Sanders: Probably among the more unexpected contenders, the self-declared democratic socialist senator from Vermont has raised nearly $100 million through a largely grassroots style campaign thus far. His main economic platform consists of the ‘Millionaires and Billionaires’ speech in which he argues the top 1% are earning a disproportionate amount of income through an exploitation of a rigged economic system. Sanders has been tough on ‘wall street’ and the big banks for being too big to fail in 2008, being bailed out by taxpayers during the financial crisis, and being bigger in 2016 than they were before the crisis.  He has generated a lot of energy among millennials by running on a platform promising a single payer healthcare system and free college for all who attend four-year public colleges. In continuing that theme, he also proposes boosting the federal minimum wage to $15 per hour, a ‘livable’ standard – a move that could put current low wage workers in a position to have discretionary income for the first time in decades. He has also taken bold positions on protecting the environment and an energy policy designed to promote a ‘climate justice plan’.  To pay for all this, he has proposed a substantial increase in the top marginal tax bracket to levels closer to 1950’s era U.S. where top income earners saw marginal tax rates in the 90% range. Presumably a Sanders presidency would not be kind to the very rich.

Winners: A boost in the minimum wage coupled with a single payer healthcare system could unleash the U.S. consumer like never before. Low wage earners who have never been able to afford the newest gadget could be positioned to do so for the first time under this plan. Consumer & Technology equities could be huge beneficiaries of a Sanders presidency. Clean energy equities would likely benefit if his environmental and energy plans were implemented.

Losers:  In his own words, ‘Wall Street’ is likely to suffer from increased scrutiny and regulation. The Oil & Gas industry would likely lag the market as Sanders has come out in favor of pursuing clean energy alternatives.  Financial services firms who hold student loan debt would likely see their interest rates decline or perhaps see those loans dry up as they move to public financing of student debt. Sanders has stated he would break up the big banks deemed ‘too big to fail’, which may possibly cause some turmoil in that sector.  


Hillary Clinton: Following the results of Super Tuesday, it seems the former Secretary of State is a lock for the Democratic nomination. Clinton has branded herself as the most pragmatic candidate promising to continue down the path of the Obama administration. She has touted her extensive history in politics making her the most establishment friendly candidate remaining in the race. On economic issues, the Clinton website contains a number of specific plans including boosting federal spending on infrastructure by $275 billion over the next 5 years, guaranteeing all households have affordable broadband connections, and raising the federal minimum wage to $12 per hour. Clinton has been favorable towards the Affordable Care Act and has vowed to expand the program to ensure greater access to coverage, while at the same time cracking down on price gouging and restricting the tactic of reformulation patents that help keep prices high. Similar to Sanders, she has come out in support of clean energy reform looking to create good-paying jobs and make America the world’s clean energy superpower.

Winners: Infrastructure spending would rise substantially under Clinton’s plans, implying that construction and infrastructure related firms would benefit. Similar to Sanders, raising the minimum wage would be a boost to lower wage earning households and would boost technology / consumer discretionary equities. Telecommunications could be a wildcard – if there is a serious push to connect 100% of households, perhaps this sector could see some action that has been lacking for more than a decade.

Losers:  Pharmaceutical companies currently engaging in the ‘reformulation’ loophole are bound to suffer under a Clinton presidency. Oil & Gas may also lag if the environmental regulatory agenda becomes more focused on clean energy alternatives. Larger financial companies may also need to adjust to the proposed ‘risk fee’ – a tax on the systemic risk that such behemoth institutions indirectly pass on to the broader economy.


Donald Trump: The Donald! The most underestimated candidate at the beginning of the primary process, and dismissed by the republican establishment, now appears to be gaining momentum on the way to a republican nomination. He has defined himself as a brash, tough leader who will simply get the ‘job’ done and “make America great again”. When it comes to specific policy issues it is yet unclear what a Trump presidency would look like. A quick scan of his website will lay out broad concepts, such as building a wall on the southern border, renegotiating U.S. / China trade deals, reforms for the Veterans Administration to improve care, and protecting the second amendment. Oddly, when it comes to tax reform it seems his proposals do not change much except for the closing of loopholes for the extremely wealthy and large corporations – a surprisingly progressive stance that seems to be far from the GOP base. As far as sector specific policies, there are no details yet on what we might see from this figure, other than a boycott of Apple and cutting funding for the Department of Education.

Winners: In his own words: Everyone. Objectively it is difficult to pinpoint any area that might thrive because of the lack of specifics that have been released so far. If a wall were to be built and paid for by the Mexican government, perhaps U.S. infrastructure contractors could stand to benefit. The progressive tax position he has released may also paradoxically be a boon for government related projects. While it’s too late for the 300,000 veterans who died waiting for care at underfunded and neglected VA Hospitals, still-living veterans would benefit from a funded and fixed Veterans Administration in the first 100 days a Trump presidency.

Losers: In his own words: Everyone who disagrees with him. If there is one thing that financial markets hate, it is uncertainty – and uncertainty is likely to follow a Trump presidency. There is still time for details to be released and when that happens we can re-evaluate. Considering his call to boycott Apple, perhaps Apple stands to lose the most from this outcome.

Winner / Loser:  The Republican Establishment.  The Grand Old Party will have won the presidency with Trump while not fully supporting or endorsing his election to the office.

As we get closer to the November election, we will see the field culled to two (or three!) and certainly more details about the position of each candidate will be revealed to voters through the debates, town hall meetings, and of course the flood of political ads. Given the wide range of possible policy outcomes, we will likely look back at 2016 as a year defined by political risk – sectors and industries will be whipped around at the whim of the candidate’s rhetoric as we saw last year with the Biotech and Pharmaceutical sectors crushed when Hillary Clinton called out “greedy drug companies gouging patients”. We should not be surprised if such elevated volatility continues as we approach Election Day. 

     William Royer, Portfolio Manager/                              Associate Vice President.  

     William Royer, Portfolio Manager/                              Associate Vice President.  


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