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Major indexes are getting whacked today, with the S&P 500 hitting a two-month low, as Europe rears its ugly head again.
There are a mountain of worries that investors are currently grappling with. Concerns over Greece’s political turmoil and the state of the euro are intensifying. Corporate profit growth is slowing. The U.S. job market remains shaky.
One issue not getting a lot of attention right now — but will quickly gain traction in the coming months — is the U.S. elections in November.
The presidential election will be the “biggest event for investors over the next six months,” says Jeffrey Kleintop, chief market market strategist at LPL Financial. “The outcome of the elections will define the political context and leadership for policies that address the looming fiscal imbalances coming to a head in early 2013.”
Kleintop charts the odds of President Obama getting re-elected (measured by contracts traded on Intrade) and the S&P 500. While the metrics have more or less been tracking one another, Kleintop stresses the importance of the shortcomings associated with overly simplistic election analysis.
“Is the stock market going up because of the rise in Obama’s re-election odds, or are Obama’s re-election odds going up because the stock market is rising — or, more likely, are both tied to something else?” Kleintop ponders. “Attempting to draw simple conclusions about what the market is saying about the election is fraught with the potential for misinterpretation.”
Earlier this year we pointed out how President Obama is one of only five U.S. presidents that have seen the Dow Jones Industrial Average rise more than 50% during their first three years in office. To be fair, when Obama took office the market was only weeks away from the March 2009 bottom. Obama has benefited from the market’s major bounce.
But to avoid causation and correlation arguments, Kleintop delves into the S&P 500 sectors that will be most impacted by the election outcomes. In short, health care and financials would benefit from a sweeping GOP victory, he says, while an extension of the Bush tax cuts would be a plus for high-dividend paying sectors, like telecom, consumer staples and utilities. From Kleintop:
Health Care is the biggest driver of the long-term budget problems at the Federal level. States are already cutting Medicaid to balance their budgets. A sweeping win for the GOP holds the most promise for Managed Care providers as risks decline and investors increase the odds for a repeal of all or part of the Affordable Care Act. Diagnostic labs, generic drug makers, hospitals, and nursing homes may benefit if the Act is upheld and from Democrats' leadership, given expanded health care coverage and an emphasis on preventative care and legislation to speed up the introduction of generic drugs to market.
We may see a relief rally among the banks in the legislation-sensitive Financial sector. If the GOP takes the Senate it will result in the change of chairmanships of key committees. While major changes to the financial reform law, Dodd-Frank, are unlikely, an all GOP Congress might influence regulations implementing the law. On the other hand, Republicans would likely look to address Fannie Mae and Freddie Mac conspicuously left out of the Democrat-led financial reform law, which could have negative ramifications on home loan originators. Democrats may also provide more housing support programs benefitting home builders and construction materials providers.
As previously mentioned, the potential extension of Bush tax cuts would mean the dividend tax rate may remain closer to 15% instead of going to 43.4%, a plus for companies with lots of cash to distribute. High dividend-paying sectors such as Telecommunications Services, Consumer Staples, and Utilities may benefit. Cash-rich companies in other sectors may also benefit as they introduce or substantially increase their dividend payout as they look to attract a new class of investor seeking yield. Alternatively, some food and staples retailers may benefit from potential for a further extension of unemployment benefits.
Companies in the Energy sector may be impacted by a strong election for the GOP in a number of ways. Regulations on drilling would be more favorable as would EPA regulations. We could see lower regulatory costs for producers in the Materials sector and users of coal such as Utilities. Gas may benefit from stricter coal regulations under the Democrats. On the other hand, alternative energy companies would face a less supportive outlook for subsidies under a GOP outcome.
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Markets almost always do better under Democratic presidents. You can look it up.
The subject line is the journalist equivalent of “leading the witness.” It should instead read, “Would an Obama Re-Election be Good for the Stock Market?
NO !!!
Steven, Did you write this article so that we could yet again have to stare at an image of Obama? The media’s sappy love affair with him is sickening – indeed! But, to the point. First, Kleintop suffers from a delusion of our age: that is linear expectations. Our world is so unstable that thinking, let alone writing, that one would know the biggest issue six months out is immature – especially for a writer. We live in an increasingly non-linear environment, where we can get broadsided overnight, as it were. Second, Kleintop uses bad science. If he were a student in a political science class he’d be riduculed. But I don’t believe science is his objectove. Political correctness is! Chad in CO
IF NOT FOR THE TEA PARTY NANCY PELOSI WOULD STILL BE IN CHARGE
losing a battle is not as important as winning the war
the tea party stood up for the middle class
its that simple
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