Stocks tend to do well after elections; historically, the market has climbed 16% following elections, no matter which party wins. The stock market also does well in the third year of a presidential term, especially if there is gridlock. This is likely, given news the Republicans have taken the Senate. Basically, the stock market doesn’t really want government to do very much, but there are some stocks that are likely to perform well after the Republican’s Senate victory.
Michael Brush of Market Watch identified areas that are likely to be strong, given the election results. With predictions of a 70% chance the Republicans were going to win, these stocks would have been better to buy ahead of the elections, but investors can still pounce on some of them. Brush identified medical device companies like Boston Scientific (BSX), coal plays like Peabody (BTU), and Canadian Natural Resources (CNQ) as potentially strong. The latter, CNQ, is a play on the possibility that the Keystone pipeline will be approved. This might be good for refiners, but the refiners should be approached with caution, since the Republicans might end the ban on exports of oil, which may deprive domestic refiners of businesses.
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Republicans may also repeal a medical device tax, which is good for Boston Scientific, Johnson & Johnson (JNJ) and Medtronic (MDT). They could also put in place reforms that would help Fannie Mae (FNMA) and Freddie Mac (FMCC). It is likely that Senator Richard Shelby from Alabama could be head of the Senate Banking Committee. Senator Shelby is a strong supporter of Fannie and Freddie.
