A $2.5 billion investment chief highlights the stock-market sectors poised to benefit the most if stimulus is eventually passed after the election — and explains why Trump ending negotiations doesn’t threaten the economic recovery

  • Markets fell Tuesday on the news that President Trump halted negotiations for a second stimulus deal before the election.
  • But according to David Bahnsen, chief investment officer of The Bahnsen Group, the development does not pose a long-term threat to markets or the overall economic recovery.
  • Bahnsen highlighted the stock sectors that could benefit from a stimulus deal when one is eventually passed.
  • Visit Business Insider's homepage for more stories.

Equity markets over the last month have appeared to be nervously awaiting news on a second stimulus package from Congress.

After all, many investors and economists, including Federal Reserve Chairman Jerome Powell himself, have been saying the health of the economic recovery and financial markets rely on more fiscal support.

So when President Donald Trump tweeted on Tuesday that he had instructed his Republican colleagues in Congress to stop negotiations for a deal, it didn't come as much of a surprise to see the Dow Jones Industrial Average immediately fall by around 400 points.

But for David Bahnsen, chief investment officer of The Bahnsen Group — which has $2.5 billion in assets under management — investors need not worry. 

Bahnsen doesn't see the news of stimulus negotiations being halted for now as particularly harmful to either markets or the economic recovery in the long term because he believes that stimulus will be passed after the election, no matter its outcome.

He cited the market's behavior over the past few months as a reason why he believes no second stimulus package for now does not pose a fundamental threat to stock valuations.

"If the market was heavily dependent on stimulus being done, and we're well over two months now — negotiations started in July — and yet the market has still moved higher a couple thousand points with no reason to believe a deal was going to get done," Bahnsen told Business Insider in a phone interview on Wednesday.

As far as the news' short-term impact on markets is concerned, Bahnsen said the result will be an increase in volatility.

"I think that the promise of a little bit of stimulus and the worry of no stimulus, that can certainly move markets up a few hundred points here or there," he said.

"But I think if the markets knew with absolute certainty today that there would be no stimulus until after the election, I don't think it's a big deal to markets. It would be priced in, and then we would wait for something else to happen — and it certainly would — after the election."

Bahnsen added that over the next couple of weeks, markets will have to guess whether or not Congress will pass a smaller stimulus package that includes things like another cash payment to Americans and aid for airlines.

As for the economic recovery, Bahnsen said a smaller deal helping small businesses might be necessary, but direct payments aren't necessary as the economy will continue to reopen. 

"Do I think that the overall recovery would be threatened if they don't indiscriminately go give $1,200 or $3,000 checks out again? No, I don't," he said. "It has very, very little stimulative impact."

Market sectors set to benefit when stimulus is passed

Bahnsen said that while there are no sectors or stocks that benefit from no deal getting done, traditionally cyclical stocks will see a boost when a deal is eventually passed.

"Anything that's leveraged into consumer — and I would say your basic economic recovery type stocks: industrials, consumer discretionary — would do well," he said.

Investors looking for exposures to these sectors might consider exchange-traded funds like the Vanguard Consumer Discretionary ETF (VCR) and the Industrial Select Sector SPDR Fund (XLI).

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