When the novel coronavirus made its rude introduction to the U.S., the management team at General Electric (NYSE:GE) must have surely felt hot under the collar. Though one of the hardest hit sectors was the travel industry, particularly air travel, someone had to supply engines and maintenance services. Obviously, this augured very poorly for GE stock, which before the pandemic depended on many things going right.
Not surprisingly, then, the once dominant industrial firm was a disappointment throughout most of the year. But since early October, GE stock started to enjoy increasingly positive momentum. At first glance, the trend contradicted outside fundamentals. Since September, new daily coronavirus cases have been rising, lead to the possibility of a return of restrictive measures.
However, many contrarians were likely reading the political tea leaves. As you know, the opinion polls heading into the election showed that Democrat Joe Biden held a consistent lead over incumbent President Donald Trump. Essentially, a Biden administration was the only hope for GE stock in this otherwise awful year.
If we have “four more years” as Trump’s supporters have been shouting, well, everywhere, that would only spell trouble for the embattled company.
According to data from the Office of the United States Trade Representative, China was the United States’ third-largest goods export market in 2019. Of significance for GE stock is that the top three exported product categories were electrical machinery, machinery and aircraft. It was vital for General Electric’s recovery efforts that we have a positive U.S.-China relationship.
As you can imagine, a second term for Trump probably wasn’t in GE’s best interest. With aggressive promises – threats really – to hold China accountable and squarely blaming the Asian juggernaut for the coronavirus pandemic, Trump was set to go medieval. Plus, in a second term, the president had absolutely nothing to lose.
Never say never but that scenario doesn’t look like it will pass, which saw Wall Street progressively bid up GE stock as the ballot counts in key battleground states racked up in favor of Biden. But before you breathe a sigh of relief, you may want to reexamine the political framework.
GE Stock Is Not Out of the Woods
As I write this, ardent Trump supporters – which have attracted right-wing agitators like Alex Jones – have accused various governmental agencies of voting fraud. This battle cry has been picked up by some mainstream Republicans to various degrees of enthusiasm. Frankly, because this has been such an odd election cycle and an odd year overall, I’d love to see some resolution to these claims, no matter how wild and frivolous they appear.
Still, if I may bring up my own opinions, I find it strange that if the Democrats have the power to manipulate elections to their liking, why don’t they exercise this capability every single election? Further, if Democrats are stealing the election, why are they only manipulating the results for Biden?
I mean, the Democrats badly disappointed in the Congressional races. Wouldn’t the liberals manipulate down ballot too? Because if you had millions of ballots that only filled in the bubble for Biden but for no other candidate in other public offices, wouldn’t that by its nature trigger warnings due to statistical anomalies?
Whatever the case, it does seem unlikely at this point that Trump can do anything to stay in the White House. However, because the Democrats haven’t been able to convincingly win control of the Senate on election day, the Republicans will be in no mood to help President Biden. And that could be the weakness in this rally of GE stock.
Here’s the deal: Trump can choose to run again in 2024, as he apparently suggested in private. Further, the Republicans really have no exciting candidate that can gin up the populist support that Trump so effortlessly commanded. However, if the Biden administration successfully rejuvenates the economy – or is perceived to do so – that would hurt Republicans’ chances four years from now.
Of course, having a profitable relationship with China would keep most people “dumb and happy,” even if that profitability came at the expense of our national dignity. Therefore, the Republicans have every reason to not cooperate with Biden, perhaps even outright stymie him to make his administration look as terrible as possible.
Waiting for More Information
According to the New York Times, control of the Senate will now be determined by two runoffs in Georgia. This occurs in January, which means that we won’t get a great idea of the governance that will impact GE stock until then.
For now, investors have two options: they can speculate that the Democrats will win, which makes General Electric a compelling buy now. However, if the Republicans take control, I probably wouldn’t want to have exposure to GE stock.
So, what’s going to happen? If I had to bet, I’d say that the Republicans will maintain control. By every measure you can think of, Trump has exceeded all expectations. Heck, the man has changed politics forever, allowing the introduction of controversial subjects – albeit stated in an impolite manner – to be debated in public discourse.
After getting badly wounded from the presidential race, I’m almost certain that Trump supporters will back the Republican candidates. In that case, anything that depends on China is suspect.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.