Post-Election Winners and Losers in the Stock Market

U.S. stock markets are struggling to digest last night's close presidential election, and the high level of uncertainty in place until a winner is officially declared – perhaps two or three months from now. The Nasdaq 100 is up more than 3% ahead of the opening bell, but the rally has short coattails because the S&P 500 is trading higher by just 1%, while the Russell 2000 is headed in the opposite direction, selling off by a few ticks.

Big tech is leading the charge, with market players hoping for a gridlocked political environment that takes the sting out of ongoing antitrust investigations. They could get their way, with betting markets now projecting a 94% chance that the GOP keeps control of the Senate. Taken together with a potential Biden presidency, the country could head into a long period of gridlock that undermines aggressive policymaking into the middle of the decade.

Commercial banks are selling off in a clear sign that a stimulus deal will be delayed past Congress' lame duck session and into 2021. The near certainty of legal challenges in many states is likely to preclude a cooperative environment in which Democrats and Republicans work together for the good of the country, but that's hardly a new phenomenon, given unproductive October stimulus talks.

Uber Technologies, Inc. (UBER) and Lyft, Inc. (LYFT) emerged as overnight winners after California voters approved Proposition 22, which overturns a court decision requiring that drivers be classified as employees. Both issues are trading about 10% higher after the news, while Uber stock is testing the 2020 high above $40. Solar stocks are headed in the opposite direction, with traders betting that climate change policy will struggle during the next administration.

Marijuana stocks are also trading lower, even though Arizona, New Jersey, and South Dakota voted to legalize recreational use, with market players more focused on weed's continued Federal status as a Schedule 1 drug. Biden has promised to overturn the classification, but a split Congress is likely to bolster the rapidly dwindling opposition. In turn, marijuana sellers could still have trouble opening bank accounts, in turn underpinning pot's enormous black market.

Nasdaq 100 Hourly Chart

The Invesco QQQ Trust (QQQ) has lifted to a two-week high after the overnight rally but recouped just half of the losses posted during the October selloff, highlighting range-bound price action that is likely to continue in coming weeks. The buying spike puts the tech-heavy instrument on equal ground with the S&P 500 index, which is also trading near the decline's halfway point in Wednesday pre-market session.

Both indices have posted lower highs and higher lows since their large-scale September declines, consistent with the development of symmetrical triangles. Price action has now entered the fourth wave of this classic consolidation pattern, suggesting that a breakout or breakdown may not unfold until year end, at the earliest. Given what we know this morning, legal battles could be raging through December, forcing market players to keep their powder dry into early 2021.

The Bottom Line

The close presidential election has triggered wildly divergent price action across the stock universe on Wednesday.

Disclosure: The author held Uber shares in a family account but no positions in the other aforementioned securities at the time of publication.