Your Presidential Vote And What It Means For Your Pet Picks
Tuesday, October 28, 2008: Issue #570
by Martin Denholm, Managing Editor, Smart Profits Report
It’s almost time to cast your presidential vote; one week from today, America will elect its next president.
What was a hotly contested race a few weeks ago now appears to be swinging in favor of Democratic candidate Barack Obama, but that doesn’t necessarily mean Election Night will be much less dramatic.
The question is: How will this major event and changing of the White House guard affect the economy, the stock market - and more importantly, individual investors? Many investors are already sick to death of the drama that the stock market has tossed at them this year, and they aren’t likely to welcome much more.
Let’s take a look…
How Your Presidential Vote Counts… Or Doesn’t
Don’t get me wrong, your presidential vote counts, but not to make any of the immediate changes you would like to see right now.
Despite the current rhetoric and hype surrounding the candidates’ respective policies, measures enacted typically don’t make any serious dent on the economy for a year or two after they’re passed into law.
Yale Hirsch, one of the co-authors behind the respected Stock Trader’s Almanac has studied the effect that presidential election cycles have on the stock market. And his research indicates that the market generally follows a pattern, regardless of whether a Republican or Democrat administration wins the White House.
According to the theory, here are the stock market returns between 1948 and 2007…
- The first post-election year is typically the worst performer in the presidential cycle, with the S&P 500 posting a 7.3% return
- The second year sees the highest record of bear market bottoms, with the S&P recording a 10.1% advance.
- In the third year of the presidency, the market picks up dramatically, notching up a 22.9% gain.
- The final year of a presidency sees more uncertainty creep into the market, with a 12.1% gain. That’s still above average, though.
While the past four years haven’t followed the above trend, this is an entirely different time, with the U.S. experiencing an epic financial crisis right on top of the presidential election.
And the market could easily fall back into this pattern… because right on schedule, economists foresee recession conditions over the next two years.
Your Presidential Vote In Action On Healthcare
And as the general populace has repeatedly made known, people are casting their presidential votes based on one key issue: the economy.
Of course, for the majority of Smart Profits Report readers, the issue is slightly more specific. You want to know how the next commander-in-chief is going to affect your pet stocks.
As an investor, if you’re looking for a map of how the next cycle will play out - and who could be affected the most - a lot depends on whether the winning candidate can live up to his promises. But that can depend largely on who controls Congress and the importance of the sector.
With regard to healthcare, this election is once again filled with candidates’ promises of how they’re going to create affordable healthcare for all Americans - a task that always seems to be easier said than done.
According to the International Strategy and Investment (ISI) research firm, a McCain administration would probably represent good news for firms like Pfizer (NYSE: PFE), Genzyme Corp. (Nasdaq: GENZ) and Genentech (NYSE: DNA), since they’d be less likely to face restrictions on drug prices.
In addition, McCain may not opt for as much of an overhaul of healthcare as Obama, so managed care firms could see an advantage. Obama would seek changes to Medicare and crack down on medical malpractice areas, so look for managed care and insurance companies respectively to undergo Obama’s favorite word… change.
And that’s especially true since both men have espoused unique alternatives to our current system, the healthcare sector will see modifications regardless.
Regardless Of Your Presidential Vote, Renewable Energy Wins
Now when it comes to the energy sector as a whole, your presidential vote doesn’t really matter since both candidates hold strong stances on improving it. As with every other subject, they simply disagree on how to go about those improvements.
Both Obama and McCain support crucial efforts to explore alternative energy in order to relieve some of America’s dependence on getting energy from volatile nations.
Earlier this year, McCain even went so far as to offer a $300 million reward for anybody who could design a “battery package that has the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars.” And both men attended former president Bill Clinton’s National Clean Energy Summit in Las Vegas, Nevada, back in August.
McCain has also thrown his weight behind greater offshore drilling and “clean coal” production, right alongside ethanol production from corn. Obama has expressed more interest in other forms of alternative energy, such as wind and solar power - two areas that could receive more subsidies and mandates under his administration.
In this respect, ISI says solar leader like First Solar (Nasdaq: FSLR), wind turbine manufacturer Vestas Wind Systems (OTC: VWDRY.PK) and waste-into-energy firms like Covanta Holding (NYSE: CVA) could see benefits.
In Conclusion, Your Presidential Vote Means Something… Later
The bottom line here is that while both candidates are busy championing their ideas and policy proposals to the country and certain sectors and stocks will benefit more than others from a regime change, the overall stock market isn’t going to be as affected as some people might think.
According to John Merrill, chief investment officer of Tanglewood Wealth Management, the market isn’t really paying that much attention to the candidates, no matter how much both like to speak out. “Today, the market and the economy are shaping events much more than the presidential election.”
Best regards,
Martin Denholm
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