Banks are election's flash point in stocks

While strategists and pundits fall over each other predicting how the US presidential race will play out in markets, the stock market itself has a clear-cut view on which industry is most at risk: the banks.

Financial institutions come up far more often than any other industry when share price correlation is plotted for sensitivity to Donald Trump and Hillary Clinton's election odds. Among the 100 stocks in the S&P 500 with the strongest ties, companies from JPMorgan Chase & Co to Progressive Corp, are moving the most based on politics. Their clear preference is for Trump.

"There are things Democrats want to do that could hurt these companies and things Republicans want to do that will help them, and that's why these correlations are so strong," said Dan Clifton, head of policy research at Strategas Research Partners in Washington. "Financials are not priced for the event that you get a Democrat sweep. Markets are paying more attention to Fed policy and not enough to the election."

It's not like bank shareholders need more drama this year. Financial stocks began 2016 by plunging 18 percent over six weeks, dragged down by concerns a recession was about to steamroll their lending business. Scandals, fines and firings have dogged the group since the bottom in February, with volatility cresting after Britain's vote to leave the European Union sent banks down 8 percent in two days.

Heavy correlation to the candidates is something else to process for bulls and bears as the US Federal Reserve considers higher interest rates and signs of inflation emerge in the economy. Flows into and out of bank shares have been among the heaviest in the S&P 500 this year.

Bloomberg