Barron’s Weekend Summary: A divided government with Joe Biden in the White House and Republicans holding the Senate should be good for markets
* Cover Story: Joe Biden, a politician investors mostly liked in the 1990s and 2000s because of his ability to reach across the aisle, his belief in incremental change, and his support for legislation considered favorable to Wall Street, is likely to be the next president, but Democrats probably won’t take the Senate, leaving a divided government; This scenario “has historically been good for markets, with the S&P 500 rising 60 percent on average during periods when neither party had full control, according to Yardeni Research. Under Democratic control, the index has risen 56 percent; under Republicans, it has risen 35 percent.”
* Tech Trader: Though Proposition 22 in California has been called a victory for Big Tech, it lost by a 60/40 margin in San Francisco, where the companies behind it—UBER, LYFT, DoorDash, Instacart, and Postmates—are based, and was defeated in Santa Clara and San Mateo counties, a sign nobody viewed it as a referendum on the tech industry.
* Trader: Corporate America appears to be getting ready for a stronger economy, regardless of who wins the election—during the first half of the year, cash spending by S&P 500 companies has held up much better than expected, says Goldman Sachs strategist David Kostin; BIIB’s Alzheimer’s drug may get FDA approval, but even with that it could take time for the drug to catch on, largely because the regular testing, monitoring, and space needed to receive it is difficult in a Covid-19 environment.
* Interview: Cornerstone Macro’s Andy LaPerriere, a seasoned observer of US elections, discusses what to expect from the executive branch in 2021, and says that while Joe Biden would be open to compromise with Republicans, the universe of things that you could get bipartisan agreement on is pretty limited.
* Profile: Joanna Jonsson and Robert Lovelace, co-managers of the American Funds New Perspective fund, seek out multinational companies where a significant portion of business is done outside of their home countries; The fund’s structure gives the seven managers autonomy in their investment decisions, and they work closely with analysts who have deep knowledge of their respective sectors (top 10 holdings: TSLA, AMZN, FB, MSFT, TSM, ASML, MA, GOOGL, NFLX, PYPL).
* Features: 1) Positive on APO: Despite growing concern about co-founder Leon Black’s ties to convicted sex offender Jeffery Epstein, shares look attractive at a recent $41, given the firm’s expanding asset base, earnings growth, and investment trends that favor alternatives managers—and the firm could continue to thrive even without Black at the helm; 2) Stocks have rallied on early indications of a split Congress that would reduce the likelihood of sweeping regulatory and tax changes, but political uncertainty remains, and the best approach for investors “may be a portfolio that doesn’t pick sides—growth or value, in this case—and includes a small buffer for the unexpected”; 3) Cautious on CMPS, Mind Medicine, Field Trip Health: Companies are among those developing psychedelic drugs for therapeutic reasons, especially in the area of depression, but it’s unclear just what role they will play in the larger medical industry, and how the newly public companies will make a profit; 4) Positive on VAC: The pandemic has hammered the business travel sector, but the timeshare business continues to benefit from the resiliency of leisure travelers, many of whom drive to vacation spots; Marriott Vacations Worldwide has a premium valuation, but it’s well positioned to get through the pandemic.
* European Trader: Positive on Danone: The Food giant has struggled during the pandemic, partly because of its strong reliance on restaurants and hotels, but chief Emmanuel Gaber has been diversifying the company away from the slow-growth dairy business, and a strategic review of its brands coupled with a management shake-up could spark a turnaround for the stock.
* Emerging Markets: A divided US government will constrain Democratic instincts to raise taxes on corporations and capital gains, benefiting equities, but that’s not the case in emerging markets, where uncertainty could push up the dollar and harm their economies, though improved US trade policy under Joe Biden could improve some countries’ prospects.
* Commodities: “The US presidential election has been more of a distraction than a direct influence on the moves for gold. Expect the precious metal to be a winner no matter the outcome.”
* Streetwise: “The bottom line is that tech has been both a bull- and bear-market play,” says Jim Paulsen, chief investment strategist of the Leuthold Group, and Terry Sandven, chief equity strategist at US Bank Wealth Management, sees the pattern continuing; Tech’s weighting in the S&P 500 has swelled, sparking concerns among investors, but the trend is merely a sign of tech’s increased involvement in people’s lives.