Investors are unlikely to make big bets with the Presidential election a few weeks away and the outcome uncertain. How will investors react once the election has been decided? What sectors stand to gain? Who will be the losers?
Neither candidate has been particularly specific on individual issues. Generally, President Bush appears to favor a strong military, relaxed regulatory oversight and making permanent the tax cuts enacted during his first term.
Conversely, it reasons that Senator Kerry would repeal many of the Bush tax cuts – particularly the 15% rate assessed against capital gains and dividends. He has also advocated cost controls and reimportation as means for curbing the rise in the cost of prescription drugs. Finally, he appears to favor tougher environmental regulations. With that in mind, here are the prospects as we see it for a selected group of post-election “winners” and “losers”:
Legacy carriers continue to struggle with the burden of under-funded pensions. President Bush seems to favor the free market approach to an extent and seems content with letting the airlines fail (should it come to that) with growth rising from consolidation and the elimination of capacity. Senator Kerry hasn’t addressed the issue but the Democrats historically like to save jobs. If so, look for him to prop up the Pension Benefit Guaranty Corporation at the expense of taxpayers.
A Democratic victory likely means tougher fuel economy legislation. The Big Three will struggle as non-US automakers continue to offer cars and trucks with better fuel economy.
President Bush appears to be the more pro-energy choice so there’s room for growth if he’s re-elected. Otherwise, there’s huge downside risk if the pro-environment Senator Kerry wins the White House. If so, look for tougher legislation to deal with pollution and the possibility of a renewed Superfund tax.
Rich valuations suggest a Republican victory won’t have much impact. Indeed, President Bush has already increased defense spending in each year of his administration. Look for price declines with a victory by Senator Kerry who is seen as focusing on social policy.
The asset management and brokerage businesses are likely beneficiaries should President Bush succeed in privatizing Social Security. Good luck! Otherwise, tort reform is the main issue here. P&C insurers stand to gain if President Bush wins and pushes through caps on what the Republicans believe are excessive damage awards. Senator Kerry and his trial attorney running mate won’t bite the hand that feeds them so tort reform won’t happen with a Democratic White House.
Senator Kerry’s victory suggests the government will play an increased role in health-care which would create a great deal of uncertainty for this sector. Stock prices and valuations could suffer greatly – particularly if the Democrats control Congress. A second term for President Bush should limit the government’s role to oversight of drug and device approvals (e.g. Food & Drug Administration) and administration of existing programs (e.g. Medicare).. Health care stocks could see modest upside with greater gains if Congress remains Republican. Regardless of who wins, this sector should remain under pressure from expiring patents, decaying product pipelines and lackluster increases in the selling price of drugs.
Tax cuts and relatively low interest rates have been a boon. The good times should continue to roll with a Republican victory. A win by Senator Kerry likely means higher taxes and lower consumer spending. Also, watch out for Democratic attacks on economic incentives for outsourcing which, in turn, would raise the price of many products sold by department stores and discounters.
The issue here is structural so don’t look for a victory by either candidate to radically impact this sector.
Senator Kerry favors stricter environmental standards which doesn’t bode well for producers of electricity and their coal-fired generation facilities. President Bush’s policies of tax cuts and deficit spending should promote economic growth and, in turn, increase the demand for electricity. High-yielding utility stocks benefited when the dividend tax rate was lowered to 15%. However, much of this is already factored in and should be canceled out as interest rates continue to rise. As such, the outlook for this sector is highly dependent upon economic growth and the potentially changing regulatory landscape.