All the turmoil in the economy has forced investors to focus on things other than the presidential election in recent weeks.
But who wins on Tuesday could still influence how stocks perform in the weeks and months ahead, analysts argue.
The conventional wisdom is that a Republican win is good for stocks and a Democratic win bad, but the performance numbers don’t back that up.
Since 1928, stock markets have averaged annual returns of 12 percent during Democratic administrations versus 4 percent under Republicans, according to a report on the election from UBS Wealth Management.
One explanation: Investors price in a worst-case scenario when Democrats are likely to win, only to be surprised when things go better than expected.
A growing expectation is that equity markets, after taking a severe beating in September and October, will enjoy a “relief rally” next month.
“Regardless of who wins, everyone will breathe a sigh of relief,” said Al Woodward, chairman of Woodward Wealth Management in Greenwood Village. “Recovery will start right after the election.”
Robert Froehlich, chief investment strategist at DWS Investments, argues that who the new president is will influence what stocks lead that rally in a way clear enough that investors can profit.
Under a Barack Obama administration, alternative-energy and environmental-cleanup companies will receive a major boost, predicts Froeh lich.
In particular, solar, wind, biofuels, fuel cells and clean-coal technology would receive favorable tax treatment, outright subsidies or mandates that utilities buy their output.
A win by John McCain would boost traditional energy stocks, given his promise to remove restrictions on drilling on federal lands and to not impose a windfall-profits tax.
Oil-field service providers and engineering and construction firms also would benefit.
Obama’s promise to enforce existing trade and tariff agreements more strictly should benefit old-economy industries such as paper and steel.
Likewise, a McCain victory should support discount retailers that count on the free flow of cheap imported goods to support their business models.
Obama’s support for a national health plan should boost spending at hospitals, nursing homes and clinical labs, predict analysts at UBS Wealth Management.
By keeping tax rates on capital gains and dividends low, a McCain administration should make it easier for financial-services firms to heal.
Tax-exempt municipal bonds, which have fallen sharply in value in recent weeks, could benefit as higher-income households seek to shelter income from higher taxes likely under Obama’s plan, said Fred Taylor, a money manager with Northstar Investment Advisors in Denver.
Obama is considered more likely than McCain to provide loan guarantees or subsidies to the ailing auto industry, Froehlich said.
Even if fiscal realities don’t allow that to happen, auto stocks could still rally on the expectation that more help is on the way, he said.
Taylor said he will closely watch the choices the next president makes for the secretary of the Treasury and secretary of state.
“Whoever wins, I’m going to be looking to see who they surround themselves with,” Taylor said.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
