Why the Energy Sector May be a Post-Election Safe Haven
As readers here will know all too well, energy markets are notoriously volatile. The commodities that underlie them and therefore the stocks in the sector are subject to multiple influences such as the geopolitics of the Middle East, the prospects for global growth, and the conflict between declining sentiment around fossil fuels but increasing demand for them as energy needs explode. None of those things is exactly stable, so investing in the energy sector has become something not for those faint of heart. It could well be, though, that the approaching US Presidential election is leading to a situation where energy could be a “safe haven” for US investors over the next few months.
A little while ago, as the US Presidential campaign began to take shape, I wrote a couple of pieces with stock and strategy suggestions based on who won in November. With polling now imminent, however, thoughts of individual stocks seem a bit trivial given what is at stake next week.
I am not talking from either side of the political divide when I say that there is a lot at stake, but the fact that most readers probably assumed I am perfectly illustrates the problem. Both sides in this election believe that the future of the Republic is being voted on next week. Trump supporters believe it must be protected against hordes of illegal immigrants, the advance of gay and transgender rights, and a candidate that they see as extremely left-wing, while the Harris camp has not been shy about…
As readers here will know all too well, energy markets are notoriously volatile. The commodities that underlie them and therefore the stocks in the sector are subject to multiple influences such as the geopolitics of the Middle East, the prospects for global growth, and the conflict between declining sentiment around fossil fuels but increasing demand for them as energy needs explode. None of those things is exactly stable, so investing in the energy sector has become something not for those faint of heart. It could well be, though, that the approaching US Presidential election is leading to a situation where energy could be a “safe haven” for US investors over the next few months.
A little while ago, as the US Presidential campaign began to take shape, I wrote a couple of pieces with stock and strategy suggestions based on who won in November. With polling now imminent, however, thoughts of individual stocks seem a bit trivial given what is at stake next week.
I am not talking from either side of the political divide when I say that there is a lot at stake, but the fact that most readers probably assumed I am perfectly illustrates the problem. Both sides in this election believe that the future of the Republic is being voted on next week. Trump supporters believe it must be protected against hordes of illegal immigrants, the advance of gay and transgender rights, and a candidate that they see as extremely left-wing, while the Harris camp has not been shy about telling their supporters that the country needs to be protected against the “Nazi”, Donald Trump.
This, and the fact that the polls are basically indicating a dead heat at this point, creates a situation where it is hard to see a “good” outcome for America, or certainly its economy. Based on history, any Harris win will see a stock selloff, as that is what typically happens when Democrats prevail, let alone one who has said she will increase corporate taxation as soon as possible if elected. Also, a close win for Harris, which looks possible given the state of the polls, will undoubtedly result in accusations of cheating. Based on 2020, there will be no evidence to support that, but it will still be enough to rile up Trump’s supporters and will almost certainly lead to rioting and violence…not exactly the kind of stability that traders and investors look for.
Should Trump win, he has been clear that his immediate priority will be to prosecute his political enemies. That could lead to a constitutional crisis of some kind, but even if it doesn’t, it will indicate a lack of focus on the economy from the White House that will probably not be received well. Even if traders are prepared to look beyond that, though, most economists believe that the economic plans that Trump has put out there will cause short-term disruption, even if the long-term impacts may be good. Tariffs will give a big jolt to inflation, and putting Elon Musk in charge of a team dedicated to cutting costs will presumably result in big public sector job cuts that will push unemployment up, too.
Either way, it seems, the post-election period looks like being a rough one for stock indices. Energy, though, for once, may escape the turbulence. Of course, the stated plans of each candidate when it comes to the future of energy will have an impact, but Harris’s opposition to the industry will presumably put upward pressure on oil prices, while Trump’s enthusiastic support will be seen as good for companies in the industry. Despite that, though, the price of oil, the biggest single influence on energy stocks, will continue to be driven by the situation in the Middle East. That has its own inbuilt volatility, of course, but after more than a year of outright war, the market seems to have priced in that uncertainty to some degree.
So, while almost any conceivable election result at this point will result in market volatility, the fact that energy will remain focused on what Donald Rumsfeld famously called “known unknowns” will put stock in that sector in the unusual position of being a safe haven play for investors and could well be a good place to hide while the impact of the election unfolds.