What happened

It was a bizarre day on the market as stocks broadly ripped higher even as the result that many had feared, an uncertain outcome in the presidential election, was the reality. Still, investors seemed to breathe a sigh of relief that there have been no major hitches in the process thus far.

However, there was one sign that the market is pricing in a Joe Biden victory. Shares of GEO Group (NYSE:GEO) and CoreCivic (NYSE:CXW), two real estate investment trust (REIT) operators of private detention centers, were down sharply. As of 11:55 a.m. EST, GEO Group shares had given up 12.6% and CoreCivic was down 16.8%.

A ring of barbed wire on the top of a prison fence

Image source: Getty Images.

So what

GEO Group and CoreCivic are among two of the most politically sensitive stocks, so it's not surprising to see the stocks fall if investors are perceiving a Biden victory. 

In 2016, then-President Obama said the federal government would phase out the use of contracts with private prison operators like GEO Group and CoreCivic; however, that order was rescinded shortly after President Trump office. Though both GEO Group and CoreCivic initially popped after Trump was elected in 2016, the stocks have fallen in recent years, and investors are even more pessimistic about a Biden administration. 

GEO Group operates a number of Immigration and Customs Enforcement (ICE) detention centers, and the Biden campaign has promised to "end prolonged detention and reinvest in a case management program," seeking a social services solution rather than a criminal justice one for certain immigration violations. Biden also seeks to reduce the number of Americans that are incarcerated, which is problematic for GEO and CoreCivic, both of which operate a number of conventional correctional facilities.

Now what

Criminal justice reform has been increasingly embraced by both parties as President Trump signed the First Step Act, which shortens mandatory sentences for nonviolent drug offenses, among other things. That may explain why both stocks underperformed under Trump, but criminal justice reform is likely to accelerate under a Biden administration.

It's important to remember that the outcome of the election is undetermined and control of the Senate will also influence the power of a potential Biden administration, so investors in these two stocks should keep an eye on the results as more votes are tallied.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.