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Stocks in ‘election-sensitive’ sectors seem oblivious to which candidate wins. Why?

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The stock market is marching to its own drummer. And neither Trump nor Biden is setting the beat.

President Trump’s policies toward business and Joe Biden’s platform on taxes, regulation, and the like make it pretty clear that some sectors would fare better over the next four years if Trump is reelected, and others would prosper more under the former Vice President. So you’d think the prices of stocks in Trump-friendly industries would surge when he pulls closer to Biden in the polls and sell off when he falls farther behind. By the same token, it would make sense that as Biden’s lead widens, as it has recently, shares in the corridors of the economy his proposals favor would follow the same pattern.

Of course, the trajectory of stocks in different industries are influenced by many forces besides the shifting odds of a Trump or Biden presidency. Among them are the Fed’s commitment to ultralow rates, the careening course of crude oil prices, and the mounting trade war with China. But according to Tom Hainlin, national investment strategist at U.S. Bank, the two paramount drivers of both the overall market and shares in different industries, are the ebb and flow of the pandemic and the probability that Congress will pass a new stimulus. “The markets are carefully watching the progress on a vaccine, that’s the key to fully reopening the economy, and the chances of a stimulus package as a bridge to get us there,” says Hainlin.

Still, the two candidates pledge to treat the same sectors in such totally different ways, that it’s worth exploring whether their fluctuating fortunes in the polls is part of what’s pushing and pulling stock prices. To find out, I looked at what’s been happening in six industries: three that should welcome a Trump presidency and three that would benefit from Biden’s proposals.

The three Trump-leaning categories are energy, health care, and technology. In energy, Trump’s been a champion of fracking and new pipelines, while Biden backs a climate-friendly agenda that could hurt oil companies. In health care, Trump’s changes in how insurers are reimbursed for drug sales looks like less burdensome than Biden’s stance for imposing price controls. And Biden’s plans for a broader public option could shrink the share of health care dollars going to private providers from insurers to HMOs. Tech is a close call. Both candidates talk about hitting social media giants with tighter regulation, but it’s likely that a Biden administration would take much more aggressive antitrust action, since Democrats regularly blast Big Tech for exerting and abusing their supposed monopoly power.

Leading the better-under-Biden roster are industrials and materials. Those sectors depend heavily on exports, and they’re suffering from the tariffs our trading partners levy in retaliation for the duties imposed by Trump. Biden is a globalist who supported the TPP and NAFTA. His policies would boost trade and lift growth for nations that buy our products, expanding overseas markets for U.S. steel, aluminum, and cars. The Biden green agenda would marshal huge subsidies for renewables such as solar, wind, and breakthrough battery technologies.

Since early April, the Trump vs. Biden polls displayed four cycles where Biden’s lead has significantly shrunk or expanded. We’ll call those episodes the Four Waves. In Wave One, running from Friday, April 3, to Friday, May 8, Biden’s lead shrank by 1.5 points to 4.4%. During Wave Two, from May 8 to June 19, Biden gained 5.1 points. In Wave Three, from June 19 to Sept. 18, Trump rebounded by 3.3 points, lowering Biden’s lead to 6.2 points, 49.3% to 43.1%. In Wave Four, from Sept. 18 to Oct. 14, Biden roared back, grabbing 3 points and establishing his current big lead of 9.2 points, 51.4% to 42.2%. Did stock prices in these six industries––all that could have plenty riding on the outcome of the election––follow the candidates’ zigzagging odds?

We’ll use the S&P industry indexes to measure the changes in five sectors and the Nasdaq Clean Edge Clean Energy benchmark for renewables. First up is the trio Trump should benefit. In tech, prices rose 15% in Wave One as Trump’s numbers improved. That seems to make sense. But in Wave Two, Trump fell far behind, and the sector did even better, waxing by 22%. Same story in the most recent four weeks of Wave Four: Trump slipped badly, and tech jumped 10.8%. The conclusion: Tech did even better when its best candidate’s poll numbers did the worst. Tech investors are yawning about the election and rejoicing over the 5G and other next-gen products they’re betting will drive today’s immense valuations to new heights.

Health care barely budged when Trump took his biggest hit in Wave Two, edging up 1%. When the gap expanded to its widest level in Wave Four, the index rose 2.3%. So the industry doesn’t seem the least bothered by the increasing probability of a Biden win.

Energy is the only sector where prices track Trump’s ups and downs. When the President’s numbers improved in Wave One, the S&P 500 Energy index rose 21%, and when his deficit expanded in Wave Four, the oil-gas-and-pipeline complex retreated 8%.

Let’s move to sectors that should be getting a Biden bump, at least in theory. When Biden got his biggest boost in Wave Two, materials went the other way, falling 6%. When the former Veep’s lead went from strong to overwhelming in Wave Four, materials rose just 1%.

As for industrials, over the two periods where the Biden lead shrank, prices increased 12% and 14%, and the two times he slipped, shares advanced 9% and 27%. Put simply, investors piling into industrials reckoned they’d thrive with either Trump or Biden in the White House.

Most mystifying of all is the reaction in green stocks. The Nasdaq Clean Edge index jumped 28% and 42%, respectively, when Trump made his best showings in Waves One and Three. Nothing against Biden: Green also gained 22% when he leaped to his widest lead in Wave Four.

The takeaway: Stocks that should benefit from a Biden presidency do no better when his polls improve than when Trump pulls closer. Of the three sectors that got a boost under the Trump presidency and risk losing that lift if he loses, only energy even remotely mirrors Trump’s prospects for reelection.

Stocks in what should be the “election-sensitive” sectors seem oblivious to which candidate wins. The narrative extends to the overall market. Biden’s proposal to raise the corporate income and capital gains rates appears to be a prescription for lowering future profits and compressing P/E multiples, how much folks and funds will pay for each dollar of those earnings. But that’s not the message the S&P 500 is sending. When Biden’s lead rose by 5.1 points in Wave Two, the S&P gained 5.7% and added another 5% in Wave Four when the chasm expanded to today’s 9.2 points.

Hainlin notes that “it isn’t unusual at all” in the run-up to a presidential election for the upfront and tangible forces that can benefit or damage businesses right now to outweigh the candidates’ positions in the minds of investors. And what’s uppermost in the minds of investors is the daily news on the the pandemic and wrangling over a new stimulus.

History also tells us that what’s proposed during a campaign often isn’t enacted. “Even if you get a Democratic sweep, it will take a long time to formulate policy and pass something,” says Hainlin. “And neither party is monolithic. For example, both Democrats and Republicans want to bring down drug prices, though in different way.” A good example of why the pandemic and stimulus are exerting a far stronger pull than possible future shifts in policy, he says, is energy. With crude oil in plentiful supply, it’s tepid global demand that’s holding prices in the $40 a barrel range. “A big Democratic victory would mean more alternative energy,” says Hainlin. “But what investors are looking for right now is the progress towards reopening that would lift demand and push up prices.”

The market is in such a party mood, so high on momentum, that it doesn’t seem to care who gets elected President. It’s been a bash. The looming policies investors are ignoring could bring a long hangover.

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17 Ways You Can Develop New Habits and Improve Your Life

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It’s possible to adapt to new ideas and habits if you’re willing to try.

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Walmart sues government to pre-empt allegations it helped fuel opioid crisis

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Walmart Inc. sued the federal government in an effort to preempt regulators’ claims that the retailer added fuel to the U.S.’s opioid crisis by filling suspicious painkiller prescriptions in its pharmacies.

The world’s largest retailer argues in the suit that the U.S. Justice Department and Drug Enforcement Administration is scapegoating the chain to divert attention from the agencies’ failures to effectively address the public-health crisis over opioids.

Watchdog groups have “meticulously cataloged” the ways regulators have “failed to safeguard the public from improper diversion of prescription opioids,” Walmart’s lawyers said in the 54-page complaint. Walmart indicated it sued the government in anticipation of the DOJ filing its own lawsuit alleging the retailer mishandled the highly addictive pills. The company wants a judge to remove “unacceptable uncertainty” about its practices.

A spokesperson for the Justice Department didn’t immediately respond to calls for comment after regular business hours. James Pokryfke, a DEA spokesman, declined to comment. The complaint comes a day after federal prosecutors announced an $8.3 billion deal with drugmaker Purdue Pharma LP under which the company will plead guilty to criminal charges over its marketing of its opioid-based OxyContin painkiller.

Walmart has been promoting its health-services offering in the U.S. — where care is expensive and the insurance system is complex. The company has announced plans to expand its low-cost clinics in Georgia and the Chicago area.

Walmart sued the government in Sherman, Texas — the same district in which federal prosecutors once weighed hitting the chain with criminal charges over its opioid-dispensing practices, according to ProPublica. Joe Brown, the former U.S. Attorney for east Texas, threatened to indict the retailer for intentionally supplying doctor-run pill mills that routinely wrote hundreds of prescriptions for opioid painkillers, according to the report. DOJ officials in Washington nixed the indictments, ProPublica said.

Maureen Smith, a spokesperson for the U.S. Attorney’s office in Sherman didn’t immediately return a call seeking comment. Brown, who stepped down in May, didn’t return a call and email seeking comment. The Wall Street Journal reported earlier on the suit.

Walmart has been sued by more than 2,000 states, cities and counties seeking to recoup billions in tax dollars spent battling the fallout from the opioid crisis. The retailer, along with pharmacy chains, was set to face a federal trial in Cleveland over its opioid handling, but the case was delayed by the Covid-19 outbreak.

Local government officials claim Walmart and companies such as CVS Health Corp., Walgreens Boots Alliance Inc.and Rite Aid Corp intentionally turned a blind eye to suspiciously large opioid prescriptions to ramp up billions in profits.

In its suit, Walmart said it has a robust system for monitoring opioid prescriptions and federal regulators are making unreasonable demands on the chain.

“DOJ and DEA are placing pharmacists and pharmacies in an untenable position by threatening to hold them liable for violating DOJ’s unwritten expectations for handling opioid prescriptions—expectations that are directly at odds with state pharmacy and medical practice laws,” the company said.

The case is Walmart Inc. v. U.S. Department of Justice, 20-cv-00817, U.S. District Court, Eastern District of Texas (Sherman).(Updates with details on opioid suits against Walmart starting in eighth paragraph)

–With assistance from Chris Strohm and Laurel Calkins.

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Trump claims at debate that China is paying for farm subsidies. In fact, U.S. taxpayers are footing the bill

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At Thursday’s U.S. presidential debate, President Donald Trump falsely claimed in an exchange with rival Joe Biden that China is paying American farm subsidies.

“I just gave $28 billion to our farmers,” Trump said.

“[That’s] taxpayers’ money,” Biden, the Democratic nominee, interjected. “[The money] didn’t come from China.”

Trump objected: “No, no. You know who the taxpayer is? It’s called China. China pays $28 billion, and you know what they did to pay it, Joe? They devalued their currency and they also paid up, and you know got the money? Our farmers, our great farmers, because they were targeted.”

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Trump’s claim that China paid for American farm subsidies is false, given that the U.S. has drawn from its own government coffers to pay for subsidies to bolster farmers hurt by the U.S.-China trade war. It is also unclear how his claims of China ‘paying up’ or ‘devaluing its currency’ relate to U.S. government subsidies to American farmers.

Trump’s January phase I trade deal with China—a first step in resolving the years-long trade war—included a vow from China to vastly increase its purchases of American farm goods. Such action would have benefited U.S. farmers, but as of now, China is far behind on meeting its targets.

Farm relief

The trade war began in July 2018, when the Trump administration levied $34 billion in tariffs on Chinese goods, meaning it cost more for American companies to import products from China. In response, China imposed a 25% tariff on U.S. soybeans and other agricultural products, meaning American goods became more expensive for Chinese importers. Subsequent rounds of tit-for-tat measures followed, which raised China’s tariffs on soybeans to as high as 33%; Chinese tariffs on U.S. pork products reached 72%.

Trump often claims that China paid the tariffs his administration imposed on Chinese goods. It’s true that the U.S. Treasury has collected billions of dollars in tariffs in recent years, but that money is paid by U.S. importers of Chinese goods, not by Chinese entities or China itself.

In reality, tariffs are intended to be a deterrent. Those imposed by the Trump White House made it more expensive for American companies to buy Chinese items; the idea being that American companies would import fewer Chinese goods if the products became more expensive, which would ultimately hurt China. American companies did seek out alternatives to Chinese products after the tariffs went into effect, but they also responded by raising their prices to cover the added cost and by cutting other expenses, like jobs. In June 2019 alone, a group of trade associations found that Chinese tariffs cost U.S. businesses $3.4 billion. By the time of the trade deal in January 2020, Trump administration tariffs had cost U.S. companies tens of billions of dollars.

The $28 billion figure that Trump mentioned on Thursday appears to refer to the $28 billion in subsidies the United States Department of Agriculture (USDA) allotted to American farmers between 2018 and 2019. The USDA rolled out the subsidy mechanism, called a Market Facilitation Program, in 2018 to provide relief to farmers whose crops had been targeted by China’s retaliatory trade war tariffs.

Corn And Soy Fields Ahead Of USDA WASDE Report
A farmer pulls a planter through a soybean field in this aerial photograph taken over a farm near Buda, Illinois, U.S., on Tuesday, July 2, 2019. The U.S. trade war with China hit American soybean farmers especially hard.
Daniel Acker/Bloomberg via Getty Images

Just as U.S. tariffs on Chinese goods made the items more expensive in the U.S., China’s retaliatory tariffs on U.S. goods made American products more expensive in China. And in this instance too, the added cost was a deterrent. Instead of importing, say, soybeans from the U.S., Chinese companies imported them from other countries, such as Brazil. That was bad news for U.S. soybean farmers, who exported roughly 25% of their harvests to China in 2017, before the trade war began.

The tariffs led to a precipitous drop in U.S. soybean exports to China. From 2017 to 2018, they fell 70%.

It is not clear how Trump came to the conclusion that China footed the $28 billion bill for farmer subsidies. The payments were the handiwork of the USDA’s Commodity Credit Corporation, an agency that is authorized to borrow from the U.S. Treasury to stabilize America’s farm economy.

“President Trump has great affection for America’s farmers and ranchers. He knows that they’re fighting the fight and that they’re on the front lines,” Agriculture Secretary Sonny Perdue told reporters in 2018.

Farmers are viewed as a core constituency in Trump’s electoral base, and the president continues to hold commanding leads over Biden in 2020 polls of American farmers.

Observers have criticized Trump for using the little-known USDA mechanism to shield his administration from negative political consequences of the trade war, without having to put the measure before federal lawmakers.

“What’s unique about this is, [the subsidies] didn’t go through Congress,” Joe Glauber, the USDA’s former chief economist, told NPR in December 2019. “The sector that is hurt the most [agriculture], and which would normally complain, all of a sudden it’s assuaged by these payments.”

The Trump Administration’s approach has caught the attention of the U.S. Government Accountability Office, the U.S.’s watchdog agency. It’s investigating whether the payments were disproportionately distributed to large corporations or to places that supported Trump in the 2016 election.

Trade deal

The trade deal that the Trump administration signed with Beijing in January this year holds China to new purchasing targets in exchange for the lowering of tariffs. Officially, Chinese tariffs on U.S. goods remained in place, but in practice China granted tariff-free waivers on goods like pork and soybeans to Chinese importers.

As part of the deal, China agreed to purchase $36.6 billion worth of agricultural goods, a $12.5 billion increase from pre-trade war levels in 2017. On paper, that action by China provides real relief to American farmers. But through August, China had only purchased $11 billion worth of agricultural products, less than half of what it needed to buy to be on track to meet the conditions of the trade deal.

Meanwhile, from 2018 to 2020 U.S. farmers relied more heavily on U.S. government support. The share of income they receive from the U.S. government, as opposed to what they receive from selling their crops, has steadily increased in the last three years. So far in 2020, 40% of farmers’ net cash income has come from government subsidies, the highest percentage in two decades.

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