After what seems like an eternity, the 2012 election cycle will soon be coming to an end.
We will soon know the outcome of the election, and roughly 50 percent of the electorate will be unhappy, but we will all survive.
So because I am not planning on moving out of the country if the election doesn’t go my way, and because markets will open for business on Nov. 7, let’s talk a bit about different strategies, challenges and opportunities that might emerge from Tuesday’s results.
First, the fiscal cliff. By now everyone should be acquainted with this term used to describe both massive tax increases and massive federal spending cuts scheduled to take effect Jan. 1.
On Oct. 18 the Obama administration stated definitively that the president will veto any legislation addressing fiscal cliff issues that does not include increased tax rates for higher income earners. The president’s stance clashes directly with Republicans, especially Tea Party members, who have signed the Americans for Tax Reform no new taxes pledge.
While most experts expect an eventual compromise, this brinkmanship on both sides of this timely issue could result in increased stock market volatility through the end of the year. Assuming Republicans hold the House, markets may perceive a President-Elect Romney as more able to resolve this without additional uncertainty.
But elections aren’t about what happens during the lame duck session, and there are some considerable differences between the way these two candidates would approach regulatory, fiscal and monetary policy.
An Obama re-election will safeguard the implementation of "Obamacare." This should be positive for Hospital and HMO stocks as more consumers enter the health care market.
Despite being an incumbent, I find the president’s economic vision harder to gauge. Until we see just what a second term agenda could look like economically, I might look to defensive sectors such as food and consumer staples. I would also be inclined to hold more bonds, and considering current federal spending trends, perhaps some gold as well.
A Romney agenda is likely to involve a rollback of Dodd-Frank financial regulations; this could lead to strength in financial stocks. It would also involve more domestic energy production; in this regard I like energy infrastructure and energy service companies. Utilities could benefit from less restriction on coal use, and increased defense spending could offer some opportunity as well.
An Obama re-election will mean a higher likelihood of a reappointment of Ben Bernanke in 2014. Markets addicted to the Fed’s easy money policies could respond well to this going into the mid-term. Romney is likely to not reappoint the Fed Chairman, leading to renewed bouts of uncertainty late next year.