Wall Street may rally regardless of presidential election winner
If nothing else, the end of the grueling presidential campaign will bring a long-awaited dose of certainty to the stock market.
Given the divergent economic and fiscal policies of President Obama and Republican challenger Mitt Romney, investors have strained for months to divine who will win and how they should position their portfolios.
Regardless of which candidate prevails, some analysts say, the stock market might rally Wednesday as investors celebrate the end of the race.
“Come Wednesday morning, Wall Street is really going to have one collective sigh of relief because a lot of the uncertainty overhanging the markets should be lifted,” said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.
Historically, when the stock market has risen in the first three quarters of a presidential election year, it has continued to climb in the final three months, said Diane Jaffee, manager of the TCW Dividend Focused fund.
“Regardless of who gets elected, the market is going to trend up in the fourth quarter,” Jaffee predicted.
Although Republicans sometimes are perceived as more business-friendly, the economy and stock market have fared much better during Democratic presidencies, according to data crunched by Sam Stovall, chief equity strategist at S&P; Capital IQ.
Since 1900, the Standard & Poor’s 500 index has risen an average of 12.3% a year during Democratic administrations versus 5.1% for Republicans, Stovall said. Gross domestic product was 4.2% for Democrats versus 2.6% for Republicans.
Judging by the market’s recent performance, Obama is likely to secure a second term.
Since 1900, the incumbent was reelected 80% of the time that the S&P; 500 rose from August through October of a presidential election year, according to Stovall’s research. The index was up 2.4% during that period this year.
Still, a victory by either Obama or Romney could have big effects on various sectors of the market.
A second Obama term, for example, could boost shares of technology and alternative-energy companies. It also could help industries as varied as home builders, hospitals, fast-food chains and aluminum makers, analysts say.
A Romney victory, by contrast, could lift financial-services firms, coal and other energy producers, high-end retailers and restaurants and dividend-paying companies.
Among the sectors that could be most affected is banking.
Obama took a sharp tone with Wall Street in the aftermath of the financial crisis and pushed through new regulations that the industry has decried as too stringent. Romney probably would reverse the new rules, eliminating those he could and installing appointees at regulatory agencies who go lightly on the industry.
From an investor’s standpoint, Romney promises “a more ‘balanced’ approach to bank supervision,” a Credit Suisse report concluded last month.
“Bank of America and Citigroup are the ones that could benefit the most from a Romney win,” RBC Capital Markets analyst Joe Morford said.
However, some investors are unnerved by Romney’s pledge to not reappoint Ben S. Bernanke as chairman of the Federal Reserve, saying the central bank’s effort to keep interest rates low has put a floor under the economy and boosted stock prices.
Others are worried about Romney’s tough talk on China, which they fear could trigger a trade war.
“The removal of Bernanke or the designation of China as a currency manipulator would have a negative impact on the industry and the markets,” Rochdale Securities analyst Dick Bove said.
Meanwhile, healthcare companies and their investors have been watching the campaign closely in light of Romney’s repeated vow to repeal Obama’s signature law, the Affordable Care Act.
The federal healthcare overhaul imposes new rules on insurers and cuts reimbursements for many hospitals. But some experts think the net effect could be positive for many healthcare companies because the law expands coverage to an estimated 30 million Americans and requires most people to purchase health insurance.
That will bring millions of new customers to the insurance industry and may alleviate some of the uncompensated care hospitals incur now.
The federal law also calls for a major expansion of Medicaid, the state-federal program for the poor and disabled. Executives at Molina Healthcare Inc., a Long Beach insurer that specializes in Medicaid health plans, don’t think Romney alone would be able to reverse many aspects of the healthcare law.
“We think it will be difficult for a Romney administration to repeal the Affordable Care Act unless Republicans pick up a significant majority in the Senate,” said J. Mario Molina, the company’s chief executive. “It may be modified, but we don’t see it going away.”
No matter who wins the election, he said, the federal government will face the same fiscal pressures and it will have to take steps to slow down rising costs in Medicaid and Medicare.
As for energy, a Romney victory probably would boost the sector, especially coal-related companies that would face stricter environmental regulations under President Obama, analysts say. Solar and other types of alternative-energy companies almost certainly would fare better under Obama, given the president’s support for government assistance to the industry.
Defense stocks could benefit from Romney, who has been outspoken in supporting military spending.
Given Romney’s opposition to tax increases on the wealthy, luxury-goods makers and other high-end retailers may do better if he is elected, analysts say. Conversely, lower-priced food chains could benefit under Obama if consumers downshift their spending.
Shares of large companies that pay sizable dividends, such as utilities, could suffer if Obama is reelected but fare much better under Romney.
Obama has proposed raising the taxes that wealthy people pay on dividends. In place of the current 15% rate, dividends for high earners would be taxed at the same level as ordinary income, as much as 39.6%.