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'Blue Wave' Lifting These ETFs

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Cinthia Murphy
·4 min read
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Detailing market moves can feel like chasing a moving target. But it’s worth noting that early Wednesday, following Tuesday’s outcome of the Georgia Senate runoff election, the market was reacting to the many changes—from taxation policy to company oversight to health care and the environment—that could come ahead.

From a sector perspective, the immediate winners and losers seem to be largely in line with expectation of what parts of the market will benefit from Democrats controlling the House, Senate and White House.

The best-performing sectors Wednesday morning were financials, clean energy, health care and materials, measured here by the performance of the Select Sector SPDRs: the Financial Select Sector SPDR Fund (XLF) was up 4.6% early on, the Energy Select Sector SPDR Fund (XLE) was up 4.2%; and the Materials Select Sector SPDR Fund (XLB) was up 3.6%. For perspective, the SPDR S&P 500 ETF Trust (SPY) was up 0.9%.

S&P 500 At Record Highs

What’s Behind The Moves

Higher interest rates and talk of big infrastructure spend are supporting financials and materials. There's a narrative circulating also about a so-called reflation trade that supports these sectors tied to the reopening of the economy. Energy is a more complex story, in which some value-chasing has been supporting that sector for a while, and now news of oil production cuts in Saudi Arabia are further buoying the sector, so the strength seen Wednesday could have more to do with these driving forces than the election itself.

The real energy-related winners, however, are only a small part of XLE—the clean energy names. During his campaign, President-Elect Joe Biden talked about a $2 trillion investment in clean energy over his tenure, boosting ETFs like the Invesco Solar ETF (TAN) more than 7% this morning; the iShares Global Clean Energy ETF (ICLN) was up more than 5%. These ETFs, and others in this segment, first got a jolt in the arm during the presidential debates in the fall when talk of massive investment in clean energy first came up, but the outcome Tuesday breathes new air into that upward momentum. And all together, the day’s news was rising the energy tide, lifting all boats.

The flip side of the trade was technology. There’s renewed concern that a Democrat government will be stricter and more heavy-handed with big technology companies, and that weighed on the segment today. That could mean anything from anti-trust action to the blocking of future mega tech mergers along with other regulatory actions aimed at the largest tech companies.

Technology—the long-standing winner of recent years—may have been poised for a correction of some sort anyway, but the outcome of the election has definitely cast a shadow on the sector, at least initially. The Technology Select Sector SPDR Fund (XLK) was down 0.3% early Wednesday.

And finally, there’s healthcare. One of the most sensitive sectors to the political environment was up marginally this morning, with Health Care Select Sector SPDR Fund (XLV) rising 0.9%. The prevailing market idea seems to be that Democrats controlling Congress and the White House won’t bring any meaningful changes to the industry, but as we've seen in the past, changes in leadership often lead to changes in policy that impact this sector, so it remains to be seen what happens next. 

Marijuana ETFs Heat Up

Outside of sectors, an interesting pocket rallying on the heels of the election was marijuana ETFs. The largest of the group, the ETFMG Alternative Harvest ETF (MJ), with nearly $1 billion in assets under management, was up 10% in early trade. The AdvisorShares Pure Cannabis ETF (YOLO), an actively managed ETF, was up 8.77%. Pot stocks were hot. 

Because marijuana is a controlled substance, businesses engaged in the selling and cultivation of cannabis are blocked from using the federal banking system, which is a major roadblock for an industry striving to go mainstream. The inability to use credit cards or FDIC-insured banks for transactions has been a limitation for the industry, as well as a hindrance to investment. Democrats are expected to be friendlier to this industry, possibly opening the doors for decriminalization at the federal level, and for investment access to what's considered a very growth-y part of the market. 

Cinthia Murphy can be reached at cmuprhy@etf.com

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