Market Impact of the Presidential Election
Market Impact of the Presidential Election
There is much at stake in the upcoming presidential election. From how to tackle the deficit to how to reduce our dependence on foreign oil, the issues are complicated and interrelated – and the candidates differ vastly on their beliefs and intended approach.
How will the election affect the economy, the stock market, and you? How can you best prepare for this event, and respond to the outcome? The following analysis examines the platforms and records of the two candidates, and three sectors that stand to benefit from the election of each.
Financial Services Sector
The recent sub-prime mortgage crisis and the ensuing recession brought increased scrutiny on the United States financial system. President Obama responded to widespread calls for reform in 2010, signing the Dodd-Frank Wall Street Reform and Consumer Protection Act. The bill, at more than 2,300 pages, detailed widespread regulations which placed greater restrictions and requirements on banks and their financial instruments, while strengthening regulators and ex-panding their purview[i].
While there are many outspoken supporters of the Bill, there are also many who believe that this legislation constitutes an unnec-essary regulatory overreach – and Mitt Romney is one of them. Romney has pledged to repeal and replace Dodd Frank with streamlined, modern reforms; and to substantially amend Sarbanes-Oxley, a bill passed in 2002 that places tighter regulations on publicly traded companies[ii].
Should Romney be elected, there is little doubt that the financial services firms would face a lighter regulatory environment, which would be a boon to the sector. For instance, the controversial Volcker Rule (part of Dodd-Frank) bans proprietary trading, whereby the firm uses its own funds to generate returns, rather than profiting from client comm-issions. While proponents of the rule argue that it will decrease some of the riskiest behavior, it is projected to have a significant negative impact on banks’ profits. This is just one way in which Romney’s stated intention of loosening restrictions may benefit the financial services sector.
Another topic of heated debate as of late has been expenditures on national defense. President Obama has championed a “lead from behind” strategy, favoring diplomacy and reducing the size of our active military. Obama plans to downsize the postwar military by $487 billion over the next five years: shrinking the Army and Marine Corps, closing several domestic bases, cutting spending on new weapons programs, and reducing shipbuilding[iii].
Mr. Romney, by contrast, has pledged quite the opposite. He advocates “peace through strength”, and proposes to nearly double naval shipbuilding, strengthening our nat-ional ballistic-missile defense system, and setting a floor on defense spending of 4% of Gross Domestic Productii.
Companies in the Defense sector stand to benefit from Romney’s election. More spending may mean more contracts and thus more business for companies in this sector.
Domestic Oil Sector
President Obama made headlines in January with his decision to reject TransCanada’s $7 billion bid to build a pipeline connecting the tar sands of western Canada to refineries in the Gulf of Mexico. This decision was a reflection of the president’s consistent approach of conservative oil and natural gas development and prioritization of alternative forms of energy.
Romney has publicly stated his strong disapproval of this decision, and has added approving this project to the list of things he will do on his first day in office, were he to be elected. His support of this project is consistent with one of his campaign’s major goals – to “facilitate rapid progress in the development of domestic oil and natural gas reserves.” Romney has announced that he will approve projects exploring and developing oil resources wherever it can be done safely, including in the Gulf of Mexico, Atlantic and Pacific Outer Continental Shelves, Western lands, the Arctic National Wildlife Refuge, and off the Alaska coast. Romney is also in support of the development of natural gas from shale reserves, through the controversial process of hydraulic fracturing, known as “hydrofracking”ii.
Like the financial services sector, oil companies that operate in the United States may face a looser regulatory environment under Romney. Granting access to reserves that were previously off-limits could lead to increased production and benefit companies in this sector.
Green Energy Sector
On the flip side of the energy coin, Obama has remained in strong support of alternative forms of energy production throughout his presidency. Electricity generation from both solar and wind more than doubled from 2008 to 2011. Obama approved the first-ever solar projects on public lands and the first offshore wind projects, as well as the first new nuclear plant in decades. He has approved and supported the construction of commercial-scale next-generation bio-refineries, and has increased the legal level of ethanol that can be blended into gasoline. In addition, he has implemented a 10-year plan to develop and deploy cost-effective clean coal technology[iv].
While Obama’s commitment to green energy has been strong and consistent, critics of the measures argue that the free market does a better job of “choosing winners.” In particular, the Romney campaign has focused on the president’s highly publicized failed investment in Solyndra, a solar company.
Continued subsidies and regulatory support for green energy may benefit companies in this sector.
The Patient Protection and Affordable Care Act is the health care bill passed in 2010. Informally referred to as Obamacare, when fully implemented the act will insure 34 million more Americans than when it was passed. As of last year, 18.2% of Americans under the age of 65 were uninsured. This bill aims to reduce that figure to about 5%[v] & [vi].
Romney has added this too to his list of repeals on his first day in office, citing the exorbitant cost. The Congressional Budget Office has determined that the act will cost the government $900 billion in the short runv. Due to increased efficiencies coming from insurance regulation and preventative care, the plan is projected to be budget neutral and begin actually reducing the deficit in ten yearsv. However, before it reaches this stage, healthcare companies could stand to benefit from the increased expenditures.
Technology may also perform well should Obama be reelected. Obama has spearheaded efforts on patent law reform, signing the America Invents Act late in 2011. This law was intended to streamline and thus speed up the patent approval process. He has also championed several “lab-to-market” init-iatives, partnering with universities for a “commitment to commercialization” as well as making it easier for startups and tech-nology companies to obtain license agreements[vii] & [viii].
The president has also launched the Advanced Manufacturing Partnership, which works with technology companies, educational institutions, and the government to invest in programs that will create high-quality manufacturing jobs domestically, with a specific focus on advanced materials and roboticsviii.
Continued support for technological in-novation could benefit companies in this sector.
In conclusion, Mitt Romney and Barack Obama’s stances on certain issues will have a marked impact on the economy – affecting certain sectors more than others. The Financial Services and Domestic Oil sectors may benefit from looser regulation under Romney, while companies in the Defense sector may benefit from increased ex-penditures. Should Obama be reelected, companies in the Green Energy, Healthcare, and Technology sectors may benefit from continued subsidies and regulatory support.
At the Armstrong Advisory Group, we take all factors into account when deciding how best to meet our clients’ needs. Our team of talented professionals is dedicated to exceptional service and outstanding per-formance.
*The opinions and forecasts expressed are for informational purposes only and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. The representative does not guarantee the accuracy and completeness, nor assume liability for loss that may result from the reliance by any person upon such information or opinions.
[i] “Brief Summary of the Dodd-Frank Wall Street Reform and Consumer Protection Act”
Senate.gov. 5 June 2012.
[ii] Mitt Romney Campaign Website, Issues section
Mittromney.com. 5 June 2012.
[iii] “Pentagon Budget Set to Shrink Next Year” Whitlock, Craig, 26 Jan 2012.
The Washington Post Online. 5 June 2012.
[iv] Barack Obama Campaign Website. Issues section, Energy sub-section
Barackobama.com. 5 June 2012.
[v] “The Patient Protection and Affordable Care Act: Detailed Summary”
Democrats.senate.gov/reform. 5 June 2012
[vi] “Health Insurance Coverage: Data for the U.S.”
Centers for Disease Control and Prevention. 5 June 2012
[vii] “America Invents Act of 2011”
United States House of Representatives: Committee on the Judiciary. 5 June 2012.
[viii] “‘Lab to Market’ Initiatives Transforming New Ideas into New Jobs” Kalil and Maynard, 28 Oct 2011
Whitehouse.gov, Office of Science and Technology Policy. 5 June 2012.
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