Disclosure: I promise I will never use this blog to express my political opinions. I will use it to discuss the potential impact on the economy and investment markets from an objective standpoint though!
I was beginning to think that President Obama had this election wrapped up, but we’ll see if last night’s debate can tighten the race…
Stocks, in general, typically do well during an election year – as we have seen this year. If the incumbent party wins, they typically continue the path higher. If a new party takes over, history says that stocks will experience a bumpy ride over the next year. This has been the case because the new President spends a few months gutting all of the “bad policies” the previous President implemented.
If President Obama is elected to a second term, I expect a continuation of what we’ve seen the past two years – gold, high yielding stocks and municipal bonds should do well. Gold because we’ll see continuous printing/stimulus from the Fed, and muni bonds because President Obama wants to raise taxes on higher income earners. Energy, utilities and transportation stocks will most likely continue to lag from tax, environmental and regulatory pressures.
If Governor Romney wins, I would expect to see utilities and transports outperform as Governor Romney has stated that he is a supporter of coal. Energy is a tough one tough – I think you need to be selective. China’s decelerating growth has kept a lid on the price of oil, copper and energy/industrial stocks. However, there is a boom happening in the US as we seek energy independence which has created some great growth opportunities for companies. If Romney’s plan to lower taxes for small business takes hold, you could see Small Caps benefit as well. Lastly, I think muni bonds will benefit, despite Romney’s proposal to lower tax rates on the middle class, given his track record in Massachusetts. I think his plan to give more responsibility to the states will only benefit their budgets.
As a side note, I find it funny that, in politics, the candidates will try to take credit/place blame for a good/bad economy. The truth is that the President inherits a good or bad situation, does his best to make things better, but typically has little impact. The economy is driven by demographics and long-term economic trends, where the present day is essentially the culmination of the previous 100 years. You typically don’t see the effect of a President’s actions for years to come. That’s one tough job!
Please feel welcome to share this with anyone you think would find it interesting, and thanks for checking out my blog!
-Nick