As the presidential vote counts drag on, watch out for an outcome that at first blush might seem bad but could turn out quite good for stock investors: A Joe Biden presidency, but the U.S. Senate remains Republican-controlled.
That’s the view of Bob Iaccino, editor of the Stock Think Tank.
“It’s my opinion that the Senate matters more than the presidency for stocks. OK, maybe not for public opinion. But for stocks, I think the Senate matters more,” Iaccino told Yahoo! Finance. “I think a good outcome for the equity markets would be the Republicans keep the Senate and Joe Biden wins the presidency.”
The reason? There’s going to be a big federal stimulus package coming no matter who wins, Iaccino said.
“I think it’s bipartisan,” he said. “I think there’s going to be stimulus either way after the election and probably very quickly.”
That doesn’t mean the actual vote counts will wrap up neatly or soon, Iaccino said. Former Vice President Al Gore didn’t concede the 2000 election to George W. Bush until Dec. 12 — more a month from now.
“We’ve seen this before. There’s just so much vitriol with this particular incumbent that it’s going to seem like something we haven’t gone through before. And I think stocks are recognizing that,” he said.
Regardless, it will work out eventually, Iaccino said.
“I think a lot hinges upon Joe Biden conceding with grace. And President Trump if he loses, it’s probably going to be a very big loss. And I really think he’ll accept that,” he said. “There’s not much to fight about in that situation.”
Exxon ‘uninvestable’
Meanwhile, look for energy stocks to suffer in the short to medium term as Europe goes back into lockdown and the United States braces for a dark winter of rising COVID infections, Iaccino says.
The oil business right now is entirely a demand story, he points out. Grounded airlines and unwilling travelers will have an outsized effect for the immediate future.
That means energy producers must continue to cut output.
“They definitely need to taper if they want to stabilize prices. Also, there’s going to be an eventual drop off of U.S. production, whether it’s regulated away in a Biden presidency or whether it is just straight supply that’s been eroding as you see the rig counts,” Iaccino said.
“The rig counts are down about 80% from where they were at this time last year, which is just a natural occurrence of price. So either way, it looks like the supply is going to outstrip demand for the near future with the pandemic rising.”
Whatever happens to energy supply now, the long-term is looking bleak for fossil fuel companies across the board, Iaccino warned.
Increasingly, consumers are becoming convinced that renewables and alternative energy sources must replace oil, and that has investors looking to put money into those kinds of companies, rather than traditional big oil names.
Regardless of who wins the U.S. presidential race, it’s hard to see a bright future for pure play oil producers, Iaccino said.
“I think Exxon right now is really uninvestable for the medium term. Chevron’s a little bit different because they have more of a mainstream profitability built into their shares,” Iaccino said. “But Exxon to me is really in bad shape. And I think it’s just short term versus long term.”
A win for Trump could delay that shift, Iaccino pointed out, but the long term remains more favorable to green investing — for instance, shares of solar companies.
“When you take the example of a company, like British Petroleum, or even take it out to the industry where companies, like Volkswagen, Audi, are trying to get rid of their fossil fuel cars by 2031 completely mostly by 2025, it’s absolutely the future,” he said.
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