The Morning Trade

Reflation trade full steam ahead on election results: Buy Mastercard, too.
Gregory BergmanJan 06,2021,15:25

And now, the rotation is in full swing. The Dems, having secured one of the two Senate seats up for grabs in Georgia, are positioned to win the other if the polls are to be trusted. Such a democratic sweep is already being priced in, with stocks down overall on fears of higher taxes, with big tech being the biggest loser in early trading.

Corporate tax hikes and the increased likelihood of a tech regulation crackdown have moved big names like Apple and Amazon downward. Marijuana stocks like Canopy Growth are surging, as are solar stocks. But so are traditional cyclicals like financials and energy, fueled by hopes of additional stimulus a Democrat-controlled government is far more likely to push.

That said, we are not going to see a major healthcare or wealth redistribution plan that would make someone like Bernie Sanders smile; there are enough moderates in the Democratic party hailing from conservative-leaning states whose political career depends on pushing back against the more progressive elements of the party. There will be no Green New Deal and there will be no Medicare-For-All.

Okay, so what to buy?

Small-caps

The small-cap Russell 2000 is up as predicted on the possibility of a Democrat-controlled Senate. Small-caps stand to benefit from increased stimulus. Buy the iShares Russell 2000 (IWM). Shares were already on a tear before the political winds blew blue (small-caps just posted the best quarterly performance ever), and will continue to rise over the longer-term as we enter into a secular bull market.

Financials

Big banks, despite an unfriendly (rhetorically anyway) relationship between financials and the more progressive-leaning Democrat members, will be big short-term winners. The S&P Fiancials Index is up 2.8% early market, and is inching close to its pre-pandemic levels. I have long been long on Wells Fargo (NYSE: WFC) and Bank of America (NYSE: BAC).

Also, look to mid-tier regional banks whose shares are still down from early 2020 levels. I like M&T Bank Coproration (NYSE: MBT). The Buffalo, NY-based bank rose 7% this morning. The stock, trading at $137 per share, is still down from its pre-pandemic 2020 high of $173 per share.

Marijuana

Canopy Growth (Nasdaq: CGC) and Aurora Cannabis (NYSE: ACB) are both up now over 11%. The two Canadian compaies are the big players in this space, and despite Aurora's slew of issues, the stock is worth playing. Small-cap cannabis stocks are worth looking at, but put the majority of your cannabis eggs in the Canopy Growth basket.

Mastercard (NYSE: MA)

Mastercard was upgraded from a "neutral" to a "buy" rating by analysts at Bank of America. The price target now is $400 per share, representing a signficant upside from its current price of $349.61. The stock is up 2.19% as of early trading.

Disclaimer

The opinions expressed in this article do not reflect the position of CapitalWatch or its journalists. CapitalWatch has no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only and does not constitute financial, legal, or investment advice.

Topics:Stocks, Bonds, ETFs, US stocks, equities,
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