The U.S. presidential election is fast approaching, but it may not have as much an impact on markets as people may think, some investors say. With just a little over two weeks until the election, the race appears to be locked in a “dead heat” between former President Donald Trump and Vice President Kamala Harris, according to the latest national NBC News poll. Trump has recently seen a comeback in the polls, in addition to some recent signs equity markets are pricing in his victory , and possibly even a Republican sweep. Meanwhile, Harris’ popularity has waned somewhat from its heights over the summertime. But many investors are optimistic the bull case for stocks will hold regardless of the election outcome, especially given the major averages’ recent performance. While the Dow Jones Industrial Average and S & P 500 were lower Monday, they were each coming off a six-week winning streak, the best such advance of the year for both benchmarks. The S & P 500 is up about 22% for the year. History suggests the strong performance bodes well for a post-election pop into year’s end. In data going back to 1944, a prematurely strong performance in election years typically meant a “further improvement” in November and December, according to Sam Stovall, chief investment strategist at CFRA Research. “History therefore implies, but does not guarantee, that active managers may put the pedal to the metal in an effort to match or exceed their benchmarks return in the final months of this unusually strong election year,” Stovall said. The strategist noted that an investor “hunger for growth” bodes especially well for communication services, financials and information technology, and less well for consumer staples, materials and energy. Scenarios Part of the reason why investors expect the election will have little impact on equities has to do with what a poor predictor candidates’ policies have been to performance in the past. When Trump was elected in the 2016 presidential election, investors expected energy would perform well — but the subsequent two years proved unfavorable for the sector. Meanwhile, renewable energy, a centerpiece of President Joe Biden’s 2020 campaign, underperformed the first two years into Biden’s presidency. “I think the lesson from that is that investors shouldn’t pay too much attention to politics, and they should really be focused on how industries and companies are changing and where there’s integration,” said Alger CEO Dan Chung. Other market observers echoed similar sentiments. Last week, John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, urged investors “to not read too much into the probability of the election going one way or the other for the Presidency or House or Senate.” Of course, investors weighing the possible election outcomes expect that a Harris victory, with a split Congress, could be a bullish development for equities. A House of Representatives in control of Democrats, with a Senate that is held by Republicans, is unlikely to pass through any bills, particularly when it comes to increases in personal or business taxes. Meanwhile, a scenario in which Trump wins may be welcomed by markets, which have been pricing in a Trump win, but will raise questions around how seriously the former president is in erecting tariffs that can hinder global trade. Risks of delayed results To be sure, one potential concern for investors could depend on how hotly contested the outcome may be, with the possibility of delayed results leading to higher volatility. “We emphasize the likelihood for a delayed election result,” Morgan Stanley Wealth Management’s Monica Guerra wrote this month. “A tight race, as well as mail-in voting and ballot counting fragmentation, raises the possibility of an undetermined election for some time, which may drive heightened volatility/” An election delay could last anywhere from days to weeks, Guerra wrote. After the 2020 election, the firm noted, the Cboe Volatility Index spiked 40% for three days until a winner was decided upon. During the 2000 election, volatility lasted for more than 30 days, through December. “We encourage investors to keep their long-term objectives in mind during periods of uncertainty and position for election related volatility,” Guerra wrote. Still, plenty of investors aren’t waiting for any clarity on the election to start positioning for a bullish end to the year. “I wouldn’t be waiting on the sidelines for clarity on the election or anything else,” said Ross Mayfield, investment strategist at Baird. “I would be leaning into the uncertainty and kind of levering up towards more risk-on types of sectors and assets.”
Check out the companies making headlines after the bell . Nike — Shares added nearly 1% after the sneaker giant and athletics apparel company renewed its uniform partnership with the NBA and WNBA. The company will be the exclusive provider of uniforms for both leagues for another 12 years. Zions Bancorporation — The regional bank stock rose 3% on stronger-than-expected third-quarter results. Zions reported earnings of $1.37 per share on $792 million in revenue, ahead of the earnings of $1.17 per share and $779 million in revenue expected by analysts polled by LSEG. Net income also came in ahead of estimates. Nucor — The steel production company declined about 3% despite posting adjusted earnings and revenue that topped expectations in the third quarter. Nucor said it expects a decline in GAAP EPS for the current period over the prior quarter. SAP SE — U.S.-listed shares of the German technology company gained 4% on strong third-quarter results. SAP also lifted its full-year cloud and software revenue guidance. Hexcel — The manufacturer of composite materials slipped 2%. In the third quarter, Hexcel reported adjusted earnings of 47 cents per share on revenue of $456.5 million. Analysts polled by FactSet sought 46 cents per share in earnings and $457.1 million in revenue. The lower end of Hexcel’s full-year guidance range for earnings and revenue was below the Street’s estimates. Alexandria Real Estate Equities – The real estate investment trust jumped 2%. Alexandria reported third quarter revenue of $791.6 million and funds from operation of $2.37 per share, as adjusted. That’s an improvement from the year-ago period, when the REIT posted $713.8 million in revenue and $2.26 per share, as adjusted, in funds from operations. — CNBC’s Darla Mercado contributed reporting.
Check out the companies making headlines in midday trading: Boeing — The stock climbed 3%. The aircraft maker reached a new contract proposal with its machinists’ union, which could end a strike that has been going on for more than a month. The ratification vote is set for Wednesday. Warby Parker — The eyeglass maker and retailer gained nearly 6% after Goldman Sachs upgraded shares to a buy from a neutral rating , saying its margin growth potential and solid fundamentals support its “somewhat elevated” valuation. Cigna — The insurer’s stock slid more than 4% after Bloomberg reported, citing people familiar with the matter, that Cigna has reignited merger discussions with Humana. Bloomberg’s sources said the talks are still in early stages. Humana shares were also marginally lower on the heels of the report. United Parcel Service — The parcel delivery stock dropped 2% after Barclays downgraded it to underweight from equal weight . The British bank said it sees multiple near-term challenges for the company. AppLovin — The application technology stock jumped 8% on the back of a major price target hike from Bank of America. The firm, which also reiterated its buy rating, said AppLovin’s artificial intelligence engine “ushered in a growth and profitability transformation.” Bank of America now expects shares to reach $210, a 75% increase from the prior target of $120. Southwest Airlines — The airline stock pulled back nearly 2%. CNBC reported Sunday that Southwest is engaged in early settlement talks with Elliott Investment Management , which would give the activist investor representation on Southwest’s board. ASML Holdings — The semiconductor equipment stock slipped almost 2%. Bernstein slashed its price target on ASML to $815 from $1,052, with the firm noting concern over a potentially “challenging” outlook in 2025. Atlantic Union Bankshares — The holding company for Atlantic Union Bank pulled back more than 5% after third-quarter net interest income missed analysts’ estimates. Atlantic Union reported net interest income of $186.8 million, while analysts polled by FactSet were looking for $195.0 million. Kenvue — The consumer health stock advanced more than 6% on news that activist investor Starboard Value took a large position in the Johnson & Johnson spinoff company. — CNBC’s Samantha Subin, Michelle Fox, Alex Harring and Sean Conlon contributed reporting.
The Nasdaq MarketSite in New York, US, on Monday, Sept. 16, 2024.
Yuki Iwamura | Bloomberg | Getty Images
KKM Financial has converted its Essential 40 mutual fund into an ETF, joining the growing shift by asset managers to a more tax-efficient fund model.
ETFs make it easier for investors and financial advisors with taxable accounts to choose when to create capital gains or losses. This differs from mutual funds, which can sometimes hit their investors with an unwanted tax bill due to withdrawals or portfolio changes.
“When you look at the tax efficiency of an ETF compared to a mutual fund, it is much more advantageous,” said Jeff Kilburg, founder and CEO of KKM and a CNBC contributor. “A lot of the wealth advisors that I work with really have issues with the capital gain distribution typical to a mutual fund.”
Many asset managers have been converting their mutual funds to ETFs in recent years, due in part to a 2019 SEC rule change that made it easier to run active investment strategies within an ETF. The number of active equity mutual funds has fallen to its lowest level in 24 years, according to Strategas.
More broadly, many asset managers are pushing the SEC to allow ETFs to be added as a separate share class within existing mutual funds.
The newly-converted KKM fund will trade on the Nasdaq under the ticker ESN. The goal of the Essential 40 is to allow investors to “buy what you use” in one equal-weighted fund, according to Kilburg. Its holdings include JPMorgan Chase, Amazon, Waste Management and Eli Lilly, according to FactSet.
“We believe without these companies, the U.S. economy would be hindered, or would be in trouble,” he said.
The old mutual fund version of the Essential 40 had a three star rating from Morningstar. Its best relative performance in recent years came in 2022, when it declined less than 11% — much better than the category average of about 17%, according to Morningstar.
Equal-weighted funds can often outperform market-cap weighted indexes during downturns. They’ve also been a popular strategy this year, due in part to concerns that the market was too reliant on the so-called Magnificent 7 stocks. The Invesco S&P 500 Equal Weight ETF (RSP) has brought in more than $14 billion in new investor funds this year, according to FactSet.
In 2024, the KKM fund was up about 16% year to date before its conversion, with roughly $70 million in assets, according to FactSet.
The ETF will have a net expense ratio of 0.70%, equal to that of the old mutual fund.