2008 will be an interesting year – to say the very least. With teetering recessionary indicators, coupled with a monumental election year, the financial markets are set for tremendous movements. Indeed, the presidential elections will impact not only the overall economy, but also very specific sectors – ones which may be in your portfolio.
Which sectors are politically sensitive?
The question in the minds of investors is what impact these elections will have on stocks and sectors. In order ascertain these possibilities, it is important to evaluate the policy statements of each candidate. In the current primary race, it appears that Hilary Clinton will be going head-to-head with John McCain, although we still have several months to go before the final party decisions.
- Health care – This is obviously one of the biggest and most important sectors. Democrats have already announced the launch of a universal health care plan at the cost of the public exchequer. This can negatively affect the earnings of private hospitals, pharmaceutical companies, and the health insurance companies.
- Energy sector – There seems to be no abating the oil prices. In order to reduce dependence on expensive oil imports and the concerns about global warming, there will be an increased stress on alternative sources of energy. Under the Democrats, this will translate into shift towards solar energy. Thus, alternative energy firms like First Solar, Inc. (FSLR) will get a lift from Democratic policies.
- Financial sector – A Democratic victory may mean more control of the financial sector through increased regulations, tighter rules, and higher taxation – especially with the issues surrounding the housing sector and increased credit crunch. Thus, the financial sectors will be impacted, depending upon the party that is elected into the White House.
- Education – Democrats are also likely to favor direct loans for student education. This may affect negatively many private student loan lending companies. The public sector companies, which can directly benefit with this policy shift, are Fannie Mae and Freddie Mac.
- Defense – This is a significant area of government spending. Though almost all the major political contenders have announced plans of withdrawing from Iraq, defense spending is unlikely to go down for a significant period of time. However, we may see a diversion towards more technology-advanced companies. Overall, it is important to exercise care while spending in this sector.
For the industrial sector as a whole, policies relating to corporate taxes, taxes on capital gains, and estate duties will impact financial returns. In addition, with the race still in the primaries, the candidates have not created hard positions regarding their proposals related to budgetary deficits, falling dollar, credit problems, and the housing meltdown crisis.
Election 2008 and Your Investments
Within the next few months, significantly more will be revealed about the official policies espoused by the Democratic and Republican candidates. Based upon the final two candidates put forth by the political parties, it is important to evaluate your portfolio accordingly.
As we are early in the election cycle, this historically results in greater fluctuation in the stock market. As the final two contenders, along with the predictions for the election, become clear the markets will subsequently improve their performance.
However, if you are a long-term investor, then do not allow the political fluctuations of 2008 to cause you to lose sleep. Historically, since 1980, the S&P 500 frequently performs significantly better after an election year than during the election year. In four of the last seven election periods, between 1980 and 2005, the post-election year has outperformed the election year.
Stay tuned as we monitor the 2008 Elections, highlighting your stocks and investments that may be impacted by the next President.