Mid-Term Election Takeaways: Stay invested. Outlook for the Innovation Economy Remains Bright
November 7, 2018 | Blog

Mid-Term Election Takeaways: Stay invested. Outlook for the Innovation Economy Remains Bright

Yesterday’s election results were largely in line with Wall Street consensus expectations. Most importantly, there were no big surprises. Accordingly, the market responded to the Democratic takeover of the House and the Republican gains in the Senate with 545-point surge in the Dow, one of the biggest one-day gains of 2018.

With the mid-terms now in the rear-view mirror, we expect President Trump to shift focus to his own re-election, which would make him more aggressive on pro-growth policies. Over the next two years, that means the White House will be loudly proclaiming the virtues of 3+ GDP growth and unemployment at all-time lows. Get ready for an onslaught of positive economic communications about how Trump is making America great again.

The topline takeaway from the election: Today’s public equities reaction is a sign of positive investor sentiment in days to follow. And, we believe this sentiment will positively impact private capital markets. In fact, we believe the healthy level of M&A and IPO activity we have seen in 2018 could continue well into 2019. With that as a backdrop, here are our thoughts on sectors and themes to watch over the next year.

Election Upside
  • Health-tech and Pharma-Tech – With Democrats in control of the house, the Affordable Care Act will be back on the table. Democrats will press Republicans to negotiate a deal on the broad healthcare law, including the individual mandate that ends January 1, 2019. This should bode well for healthcare and pharmaceutical companies. In particular, companies involved with addressing the opioid crisis are likely to be the beneficiaries. This is one of the few issues both parties agree upon.
  • Fintech & Blockchain companies – Deregulation is expected to continue and that will benefit fintech and financial services companies. Banks appear to be more stable, now having passed the stress tests. Deregulation is expected to support continued banking sector profitability. With the SEC changing its stance on blockchain and cryptocurrencies, institutional investments into crypto funds and related derivatives are also likely to increase. On the other hand, tech sector is expected to see some newer regulation, similar to the new rules imposed in Europe.
  • Infrastructure – Infrastructure spending is likely to grow. Due to bi-partisan support, we’re likely to see more spending to upgrade the nation’s aging electrical grids and other critical infrastructure. Tech companies directly or indirectly involved in infrastructure projects are likely to be the winners.
Election Downside
  • Trade wars and tariffs: With the increase in control of the Senate, President Trump might feel emboldened to escalate the trade war rhetoric. If he does, that might negatively affect the US economy and trigger a slowdown in the second half of 2019. Emerging markets will continue to be impacted if the trade wars are prolonged. Those markets could be hurt further if the US dollar continues to stay strong.
  • Mueller investigation: The firing of Jeff Sessions the day after the election has created uncertainty about the future of the Muller investigation. But an impeachment of the President from the investigation is less likely. What’s more likely are a slew of investigations by House Democrats into Trump policies. If Democrats do initiate impeachment proceedings, that is likely to roil the capital markets and increase volatility.
  • Taxes: With Democratic control of the House, another set of tax cuts is unlikely. However, the possibility of Democrats undoing the tax cuts is also quite low. Any such move wouldn’t get far in the Senate and would be vetoed by the President if it ever reached his desk.
Wild Cards
  • Interest rates: The Federal Reserve is likely to continue with three additional interest rate hikes in December, March and June. Then it will likely pause to check the impact of rate hikes on the economy and inflation. Sectors with heightened interest rate sensitivity, such as consumer staples and utilities, could see less incremental investments. Tech is generally viewed as interest rate immune, which could help venture capital investment outlook. Investments into the tech sector could grow further starting in the second half of 2019, as the economy cools down and investors start looking for growth opportunities.
  • Inflation: This is largely related to the strength in US dollar, trade wars, and interest rates. Inflation, which is around 2.3%, is tracking with the Fed’s current inflation target of 2%. But the bigger impact could be an intensifying trade war. That could precipitate a slowdown in global trade and decrease investment spending, driving the economy into a recession. A quick agreement on a trade deal is likely to help the overall global outlook and thereby accelerate the flow of capital into the private markets.
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This report is being published by SharesPost Research LLC, and distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation and SP Investments Management, LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own personal financial advisors before making any investment decisions based on this report. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.

This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or advisability of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

ANALYST CERTIFICATION

The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about any and all of the subject securities or issuers, and that no part of such analyst compensation was, is, or will be, directly or indirectly related to the specific views contained in this report.

Analyst compensation is based upon various factors, including the overall performance of SharesPost, Inc. and its subsidiaries, and the performance and productivity of such analyst, including feedback from clients of SharesPost Financial Corporation and other stakeholders in our ecosystem, the quality of such analyst’s research and the analyst’s contribution to the growth and development of our overall research effort. Analyst compensation is derived from all revenue sources of SharesPost, Inc., including brokerage sales.

DISCLAIMER

This report does not contain a complete analysis of every material fact regarding any issuer, industry, or security. The opinions expressed in this report reflect our judgment at this date and are subject to change. The information contained in this report has been obtained from sources we consider to be reliable; however, we cannot guarantee the accuracy of all such information.

Any securities offered are offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative and involves a high degree of risk. It should only be considered as a long-term investment. You must be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and you should complete your own independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or other investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright SharesPost, Inc. 2019. All rights reserved.

Alejandro Ortiz

Alejandro Ortiz

Alejandro is a Research Analyst, Private Investment Research for SharesPost Research LLC. Prior to joining SharesPost, he was a Valuation Analyst at Duff & Phelps with a focus on TMT industries.
PLEASE READ THESE IMPORTANT LEGAL NOTICES & DISCLOSURES

CONFLICTS

This report is being published by SharesPost Research LLC, and distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation and SP Investments Management, LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own personal financial advisors before making any investment decisions based on this report. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.

This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or advisability of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

ANALYST CERTIFICATION

The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about any and all of the subject securities or issuers, and that no part of such analyst compensation was, is, or will be, directly or indirectly related to the specific views contained in this report.

Analyst compensation is based upon various factors, including the overall performance of SharesPost, Inc. and its subsidiaries, and the performance and productivity of such analyst, including feedback from clients of SharesPost Financial Corporation and other stakeholders in our ecosystem, the quality of such analyst’s research and the analyst’s contribution to the growth and development of our overall research effort. Analyst compensation is derived from all revenue sources of SharesPost, Inc., including brokerage sales.

DISCLAIMER

This report does not contain a complete analysis of every material fact regarding any issuer, industry, or security. The opinions expressed in this report reflect our judgment at this date and are subject to change. The information contained in this report has been obtained from sources we consider to be reliable; however, we cannot guarantee the accuracy of all such information.

Any securities offered are offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative and involves a high degree of risk. It should only be considered as a long-term investment. You must be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and you should complete your own independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or other investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright SharesPost, Inc. 2019. All rights reserved.