In just a few days, the world will know who will take the reins of the largest global economy for the next four years. Well — in theory, anyway. This could become a hotly contested U.S. election, with both camps firmly expecting to win. Pundits are divided as to which of the two dominant parties are being predicted by the markets to win. But if banks could vote, there’s already a precedent as to which side they favour.
Watch these dividend stocks this fall
As a Big Five financial that has seen significant growth in U.S. markets, TD Bank (TSX:TD)(NYSE:TD) could sink or swim depending on the result of the upcoming election. Shares are already down 22% year over year, making the next couple of weeks critical for shareholders. Interestingly, though, TD Bank shares were up as the week drew to a close.
Scotiabank’s 6.6% yield is certainly enticing — and could conceivably widen in the event that banks take a hit this fall. Having lost almost 27% in the last 12 months, Scotiabank — like TD Bank — has a lot at stake over the coming weeks. However, up 1.7% at the time of writing, the markets are tentatively bullish on Canadian banks. Given the market forces at work, this suggests an optimistic attitude toward upcoming challenges.
Banks stocks could be predicting a post-2016 bounce
The late November/early December period also happens to be the time of the next round of earnings from the Big Five. Investors might expect some good news, since the quarter being reported on includes a period of partial reopening. If earnings beats coincide with an electoral outcome conducive to banking growth, December could see the Big Five in a better position than the current one.
Until then, though, investors watching financial stocks such as TD Bank can expect an extra choppy market in November as an unusual amount of market shaping events align. But there is at least some good news: in just a few days, a large amount of uncertainty will be removed from the markets by the election itself. After that — depending on the outcome and the way bank stocks react — the next big event will be earnings season.
The consensus EPS estimate for the most recent quarter is $0.86. Looking back, the reported EPS for TD Bank during the same quarter last year was a significantly higher $1.2. Of course, it’s no secret that banks have fared badly in 2020. Nevertheless, that’s quite the plunge in earnings. Still, if TD Bank can beat that estimate, then its share price should be able to weather some of that potential post-election volatility.
In a best-case scenario, that volatility should level off as we head into the new year. Yes, the pandemic could very well still be dominating the investing landscape in late December. But one big event will have passed: the U.S. election. Indeed, a lot of uncertainty is due to evaporate once the market knows who will be sitting in the Oval Office come January. The markets may be divided about the outcome, but at least the ambiguity will be gone.
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Fool contributor Victoria Hetherington has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA.