Yahoo Finance Market metric shows sentiment swinging toward Democrats after Pennsylvania election
A pair of stock market metrics that track the performance of individual equities that would benefit from Democratic and Republican policies shows that momentum for policy action has shifted to the left after Pennsylvania’s special election on Tuesday in which Democrat Connor Lamb defeated Republican contender Rick Saccone.
The exchange-traded funds GOP (GOP) and DEMS (DEMS), which are made up of stocks from companies that would thrive under their respective administrations, are showing a clear move to the Democrats.
“It’s a market-based signal that investors who drive the stock market are suggesting that Republican policies aren’t going to be dominating in the near-term,” Ben Phillips, chief investment officer of EventShares, the company behind the ETFs, told Yahoo Finance.
The two funds are designed to reward investors who bet that policies typically favored by Republicans—such as deregulation, tax reform or increased defense spending—or those often backed by Democrats—including clean energy, health care expansion and financial reform—will become law and help the companies that make up the respective ETF outperform.
For example, the GOP ETF contains “defense and border” companies, including Hexcel Corp. (HXL), an engineering company that builds composite materials and General Dynamics (GD) and Raytheon (RTN), two of the world’s largest U.S. military contractors. It includes similar companies with significant market share in areas that would benefit from deregulation, such as market maker Virtu Financial (VIRT), and increasing oil drilling, think Diamondback Energy (FANG).
The DEMS ETF rises when there is strong stock performance by companies in the green energy sphere, such as First Solar (FSLR) and Renewable Energy Group, Inc. (REGI) and in the health care space, including United Health Services (UHS) and Encompass Health (EHC).
Eventshares so-called Policy Meter shows that the GOP ETF has outperformed the DEMS ETF since late December, in what Phillips called one of the longer periods in which one ETF has consistently outperformed the other. The shift in the other direction following the special election in Pennsylvania’s 18th district won by Democrat Connor Lamb on Tuesday, he said, is “meaningful.”
“The market is telling us that Republican stocks are losing some favor,” Phillips said.
