Election 2012: How the Next President Will Affect Wall Street and the Economy

Andrew Klips  |

The presidential race is coming down the straight-away now with President Barack Obama and Republican presidential candidate Mitt Romney neck-in-neck in a sprint that is too tight to still call as the opening bell rang on Wall Street.  According to gallop.com, the last poll before voting today has Romney at 49 percent and Obama at 48 percent of the vote.

In Tuesday trading, the Dow is ahead by 63 points, the broader S&P 500 is up 3.8 points and the tech-heavy Nasdaq has inched forward 2.3 points.

Of course, the web is littered with commentary on how to play stocks based on the outcome of the election with the general consensus that Romney is more favorable towards Wall Street.  This is evidenced by information from the Center for Responsive Politics that shows Wall Street professionals have contributed more than three times as much to Romney than what has gone to Obama along this campaign trail.

Romney’s background at Bain Capital has many viewing him as a businessman that can utilize his skillset to benefit the country.

An interesting point to note is the impact that Romney could have on commodities, especially gold.  It has been made very clear that Ben Bernanke will not remain seated as Fed Chairman if Romney is elected President.  Most of gold’s run recently has been based on the Federal Reserve’s bond-buying campaigns, so called “quantitative easing,” and Operation Twist, which converted short-term debt to long-term. Quantitative easing devalues the dollar and increases investors’ appetite for bullion as a hedge against inflation.

QE3, or “QE forever” as it has been dubbed by many, is an open-ended program of buying $40 billion per month in mortgage-back securities that helped charge gold back up near $1,800 per troy ounce. If Bernanke is booted, there is a real concern that the program will be ended much sooner than later, which could hamstring gold trying to break upwards of $2,000 per ounce as many experts have predicted. As gold goes, so do many other metals, so the upside to silver plays could be gagged to a degree.

Romney has also been vocal about calling China a “currency manipulator” and said that he will label the country as such on his first day in office.  Now, the reality is that the wannabe Commander in Chief may actually lack the authority to make the designation.  Further, there should be careful consideration as to whether or not the U.S. wants to get into a trade war with the world’s second largest economy.  If things do happen to shake-out that way, however, look for major companies like Apple Inc. (AAPL), Tiffany and Co. (TIF) or Yum Brands Inc. (YUM) to potentially be impacted because of strong growth ties to China.

Big banks have been rebounding from doldrums after the financial collapse in 2008 and should continue to prosper if Romney takes office.  Romney has issues with Dodd-Frank and is perceived by Wall Street to want to treat the banking sector in a more balanced manner.  Leading campaign contributors such as Goldman Sachs (GS) and Bank of America (BAC) quickly come to mind for upside potential.  (That is not implying that contributions are affecting policy, just noting that they have been supporters.)

Romney is also a big supporter of defense, so companies like Lockheed Martin Corp. (LMT), Raytheon (RTN) and Northrup Grumman Corp. (NOC) – which have been on nice climbs for the past five months – could have even more upside.

If more votes say “Obama” on Tuesday, then those companies mentioned above could see inverse results.  Some of the stocks that could be impacted from a second term by our current president reside in the healthcare space.  There is truly a spider web of potential impacts related to initiatives such as the Patient Centered Outcomes Research Institute (PCORI), the Independent Payment Advisory Board (IPAB), insurance modifications, tax hikes and more, but it is generally accepted Obamacare is not particularly friendly to drug makers and innovation may be muted.

This is a topic for debate as certain components could stymie growth, but Democrats are also typically friendlier towards funding organizations such as the National Institute of Health that in turn support research with grants.  Point being here that the true impact on biotechnology companies will be a “time will tell” situation.  Some companies that derive a lot of research funds from NIH grants, such as Illumina, Inc. (ILMN) may benefit more with Obama back in the oval office.

Cliffs – namely the patent cliff and the fiscal cliff – could have as big of an impact on the traditional biotechnology sector more than who is elected.

Obama's Affordable Care Act will sting medical device companies with a 2.3 percent excise tax starting January 1; a tax Romney says he’ll eliminate.  The tax will impact the bottom line for players such as Medtronic, Inc. (MDT) and Stryker Corp. (SYK).

On the other side of the drug counter, health care systems and hospital operators such as Universal Health Services (UHS), LifePoint Hospitals Inc. (LPNT) and Tenet Healthcare Corp. (THC) are expected to perform better if Obamacare is enacted. It is notable that the focus is primarily on the presidential election, but Congress has votes being cast as well which could create headwinds against Obamacare if any significant changes take place as a result of voting.

Housing plays favor Obama over Romney. Obama is supportive of helping homeowners, which will continue to reduce the inventory of foreclosed homes, while Romney is a bit more “business, or free-market”-oriented, meaning the foreclosure process could amplify again. Homebuilders have also produced stellar gains in 2012 and that should continue going forward for plays like Hovanian Enterprises, Inc. (HOV) and Lennar Corp. (LEN).

In the energy space, Obama is a supporter of natural gas, calling the U.S. “the Saudi Arabia of natural gas,” while speaking about his energy policies in Nevada earlier this year.  For all intents and purposes, Obama was only trying to make a point, but was actually far from the truth as the U.S holds the sixth largest amount of natural gas reserves in the world.  Looking to drive use for natural gas, though, should put sector plays like United States Natural Gas Fund (UNG) or maybe even VelocityShares 3x Long Natural Gas ETN (UGAZ) on radar.

Obama has hurt coal plays, so look for further downside should he retail his seat, but he is also a fan of alternative energy, which gives headroom to plays like NextEra Energy Inc. (NEE), the largest generator of wind and solar power in North America.
On that same slate, railroads could benefit from Romney defeating Obama because some loosening of policy that has damaged the coal sector might rejuvenate coal mining and shipping.  This would leave majors like CSX Corp. (CSX) and Canadian Pacific Railway (CP) aligned for further growth as coal shipment accounts for more than 20 percent of overall sales each year.

According to CNN Money, this has been the most expensive election to date with more than $4.2 billion in funds raised through Sunday.  It’s obviously a tight race and speculation has been running rampant.  At least it’s almost over and the rhetoric and speculation about who is going to guide the country for the next four years can soon be put to rest.

Stock price data is provided by IEX Cloud on a 15-minute delayed basis. Chart price data is provided by TradingView on a 15-minute delayed basis.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

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