With 20 days left to the big day and the candidates seemingly in a tighter race than many expected it seems appropriate to look at how the equity market is and will be positioned for a potential changing of the guard if Mitt Romney wins or if incumbent Barack Obama remains in charge. Credit Suisse has created a comprehensive 'cheat-sheet' outlining key issues for the election for each candidate, the sector impact of an Obama or Romney victory, and the extent to which that impact is already factored into current market prices. Everything you wanted to know about gaming the outcome of the election but were afraid to ask.
Election year returns are high when political parties do not switch power.
- Healthcare: We expect healthcare to continue to climb up on the list of concerns by most voters. Given Obama’s first-term focus on universal healthcare and the Affordable Care Act (ACA), the debate around healthcare reform will continue to drive the sector. In addition to reform, we would not be surprised to see more dialogue around Medicare and Medicaid, drug pricing, biogenerics legislation, and preventive medicine.
- Energy: The regulation of offshore drilling after Macondo and fracking remain hot button issues, similarly approval of the cross border Keystone XL pipeline. The jobs/taxes imperative is encouraging both sides to focus on domestic drilling but the pace would likely be faster under a Romney win. Other important issues revolve around oil industry taxation and the response to instability in the Middle East.
- Clean Tech: While both parties agree that increasing energy security is important and can be used as a tool for job creation, both differ dramatically on their views supporting alternative energies. We believe most stocks currently reflect a Romney victory and would expect an Obama victory to be a positive surprise for the sector.
- Financials: If Obama retains his seat in the White House, we expect this largely to be neutral for financials. A Romney victory, however, would be viewed as positive. While we do not expect a repeal of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a more “balanced” approach to bank supervision and future bank reforms are likely to be viewed favorably. Crop insurance-related measures, dividend tax increases, and the origination of government guaranteed student loans are other hot topics.
- Educational Services: The regulatory overhaul in the federal student financial aid program, we believe, has negatively impacted sector fundamentals and resulted in sector stock prices moving down dramatically over the past two to three years. We believe the sector already reflects the impact of an Obama victory, and we see further downside risks. A Romney victory would likely help the shares initially, but continued budget concerns could weigh over time.
- Consumer: Consumer demand, in our view, may be affected materially depending on which candidate wins. To two primary differences are the impact of higher taxes on spending under Obama, and the potential for lower costs under Obama’s healthcare plan. We highlight the potential for a general sentiment trade around the election, as well.
- Capital Goods: In defense, current valuations and stock action lead us to believe the market is already discounting a more benign scenario under an Obama win (and actually a Romney win as well). Whereas a Romney victory should prove to be beneficial for Machinery, Engineering & Construction, Environmental & Industrial Services stocks.
Individual Stock Impacts
Key Issues And Candidate Positions