Which US sectors will benefit from the Biden presidency?

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President-elect Joe Biden.
President-elect Joe Biden.
Drew Angerer/Getty Images

With Kamala Harris as deputy president, tech shares could possibly experience a revival.

Can we trust the opinion polls of the US elections? In October 2016, Hillary Clinton was given a 91% chance of beating Donald Trump. Five days later, a news agency published a poll, which put her just a few points ahead of him. Excited about the polls, the Democrats approached the elections with a joyful feeling of inevitability. The collective incredulity when Clinton lost was confusing: how could the polls have been so wrong?

With the recent elections, Joe Biden was leading Trump by double digits until the day of the elections. At the moment, it looks as if Biden won the US elections by some 4% to 5% (that is if Trump capitulates). This means that the polls were out by about 5% to 6%.

After the 2016 ballot box mistake, one wonders where the compilers of the polls went wrong, and maybe the popular support forTrump was once again underestimated. The compilers would obviously have changed certain methodologies to avoid the mistake of 2016.

I have mentioned exchange-traded funds (ETFs) in previous articles that people can buy to help them protect their portfolios. They usually track an index or sector.

And just a bit more on the subject of sectors: Sectors, and more specifically, stock exchange sectors, refer to a specific ‘section’ of the market with certain price characteristics and exposure.

Therefore, if you are uncertain about how markets will react to news, such as the elections or company results – and to adopt a more conservative approach – it would be advisable to invest in an ETF. 

A win by Biden could possibly boost sectors such as consumer discretionary stocks and communication services in the S&P 500.

This is where the Communication Services Select Sector SPDR ETF caught my eye. Its code is XLC.

This is also where Kamala Harris makes an entry. She made history by being the first black, Asian-American female elected as deputy president.

Harris cultivated a relationship with the technology industry during her previous tenure as a district attorney in San Francisco and attorney general in California. The deputy president also sided with tech companies on issues, such as internet neutrality, and took a far less aggressive view regarding the breaking up of the large tech companies in terms of the country’s competition laws.

This ETF therefore attempts to provide exposure to companies in telecommunication services, media, entertainment and interactive media and services. The ETF enables investors to take strategic or tactical exposure on a more direct level than a traditional absolute investment strategy, where a person only has exposure to a specific share.

On 6 November, the ETF’s five biggest exposures were to Facebook, Alphabet (Google), T-Mobile US, Charter Communications and Netflix.

What makes this share attractive as an investment option?

If you believe that Harris is going to be beneficial for this sector, then there is the possibility that this ETF will trend upwards. This is also provided you believe in Harris’s influence. Any negative news about the anticompetition issues could affect this ETF negatively.

But must you buy?

The price action is in the process of forming a pole-and-flag technical pattern.

Usually, the price action breaks upwards and this is the reason for a target level of about $68. Such a pattern presents the possibility of the continuation of the original trend (bull) before the sideways price pattern started.

When the price breaks through below the level of $58, I will become worried. This level serves as a stop-loss.

Give it time to about mid-December 2020. A timed exit is part of an investment strategy when an investment does not deliver a return. Such a timed exit is calculated on how long the ETF on average remains in a bull trend. Also note that this is not a precise science and that one should keep market conditions in mind and make your decisions accordingly.

The graph is the medium-term (weekly) graph of XLC’s share price. Note that it’s a logarithmic scale.

It is always advisable to determine a profit target price beforehand as well as a stop-loss and a timed exit. You can always adjust your profit target price – but at least then you do have a goal rather than simply having no goal at all.

Read more
This article originally appeared in the 26 November edition of finweek. You can buy and download the magazine here.

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