With the presidential elections just weeks away, voters and political pundits across the country are seeking any sign as to who will triumph in early November. Investors, by contrast are more focused on what industries and sectors will benefit or lose under a Democratic or Republican White House.
Analysts and strategists have different models and methods, and there are mountains of statistics attempting to characterize quantitatively how the markets will perform under various electoral scenarios. But the fact is that any attempt to project hard numbers on how each industry could perform has proven nearly impossible in the past.
- While the statistical methods may not offer great direction for investors, there are some effective indications as to which industries could win or lose following the 2012 elections. These include:
- While neither of the two leading political parties are monolithic entities in terms of ideology any longer, it is safe to say that the Democrats favor more stringent environmental regulations, continued implementation of President Obama’s national healthcare plan and raising taxes on the wealthiest segments of the population to pay down the national debt and reduce deficits.
- Generally speaking, when you have a "strong personality” President in office (such as Ronald Reagan, Bill Clinton, or George W. Bush), it is safe to assume that the President’s party platform will be successfully pushed through Congress, regardless of whether the same party has a majority in the legislature or not. Because a newly elected or re-elected President can make an argument about a mandate and will likely have some wind at his back in the beginning of the next Congress, analysis of potential industry winners and losers is easier, as they will be much more directly correlated to the future President’s agenda.
- Not surprisingly, the one consistent issue that deeply concerns both political parties is the national debt, which is a cloud that hangs over all other policy discussions, and which everybody agrees is a central problem for our country. In the absence of any concerted agreement on how to tackle this issue, it is likely that additional cuts will occur in the public sector, which will be expected to do more with less.
- By contrast, Republicans generally favor more business friendly regulations, oppose ObamaCare, and support tax cuts to spur growth through greater revenue generation that can, presumably, be used to pay down the debt and reduce deficits.
With these basic facts as backdrop, who will be the industry winners and losers under a Democratic or Republican victory?
Should President Obama be re-elected, generally speaking, we can expect poor results for the energy and utilities industries (their performance will be constrained due to more limiting environmental regulations and more stringent clean air mandates which could add costs to their bottom line). However, the healthcare industry (which has not performed well so far in 2012 despite the implementation of the national healthcare plan, and confirmation of that law by the Supreme Court) may well show strength as the ObamaCare legislation proceeds into action.
Should the Republicans take the White House, we can expect a big boost for energy and utilities companies, in tandem with greater government tolerance of offshore drilling, exploration of new sources of domestic energy (including shale oil drilling), and a more business-friendly approach to clean air mandates.
At the same time, the GOP very obviously wants to repeal ObamaCare. Ironically, this may have an adverse impact the healthcare industry, particularly healthcare insurers. Insurers have turned in a couple years of strong performance as an industry group, though 2012 has been a less-than-stellar year.
Equally important—and this is a point that many of pundits attempting to opine on electoral impact on the markets have missed—the state of the nation translates into clear industry winners and losers regardless of who serves as our next President.
The biggest loser among industries will almost certainly be the defense and homeland security focused businesses. Our withdrawal from one war (Iraq), and the beginnings of our withdrawal from another (Afghanistan), combined with our national debt and deficits challenge, will likely translate into continued defense-related budget cuts. This, in turn, will translate into fewer new projects and orders for defense contractors, and indeed, the possible cancellation of many of the larger-scale contracts that were begun as recently as a few years ago.
Additionally, the “fiscal cliff” will likely play an even larger role for the markets in the next several months as the 2012 election comes and goes. In fact, if sequestration is allowed to proceed, the entire economy is likely in for difficult period over the next year.
As with any election, it doesn’t pay to structure your investments around every possible variable and scenario that could come to pass. But with some basic common sense for the 2012 elections, it’s easy to find guideposts that can guide your investing strategy for any realistic political outcome.
Timothy R. Lee, CFP®, is a managing director and cofounder of Monument Wealth Management in Alexandria, Va., a full-service investment and wealth management firm. Monument Wealth Management is backed by LPL Financial, an independent broker-dealer and Registered Investment Advisor, member FINRA/SIPC. Monument Wealth Management has been featured in several national media sources over the past several years. Follow Tim and Monument Wealth Management on their blog Off The Wall, on Twitter at @MonumentWealth, and on their Facebook page.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for individuals. To determine which investment is appropriate, please consult your financial advisor prior to investing.