If the Democrats Win: A Sector-by-Sector Look
A Democrat victory will affect the prospects -- or Wall Street's expectations -- for selected industries. But getting sector bets right isn't easy.
If the polls and the pundits are right, the Democrats will take over the House of Representatives next January, and they may be in control of the Senate as well. So is it time to adjust your portfolio on the basis of what the Democrats might do once they're in power? Perhaps, but playing sector politics is far easier said than done.
Consider the raising of the federal minimum wage, a Democratic priority and a measure that even some Republicans will likely support. A higher minimum would probably be seen as a negative for shares of McDonald's and other fast-food companies. But populous states such as California, Florida, Illinois, New Jersey and New York already require higher wages than the federal minimum of $5.15 per hour. Our guess is that another scare about mad-cow disease would hurt Mickey D's more than higher starting wages, which reduce employee turnover anyway.
A Democratic rout on Election Day could mean cuts in military spending. Companies such as Northrop Grumman and Oshkosh Truck could suffer if defense spending is reduced. So could their shareholders.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Democratic legislators are expected to propose a sharp reduction in student-loan interest rates, which the government boosted a few months ago. Presumably, this would make a few investors skittish about investing in SLM, the former Sallie Mae.
And Wall Street believes, with good reason, that the Democrats want to rewrite the Medicare law so that the government could bargain for (presumably) lower drug prices with pharmaceutical manufacturers. In 2003, the drug makers persuaded the Republican-led Congress to block such a provision. Even if Congress doesn't approve such legislation soon or ever, investors in big pharma may be facing a headwind -- unless, of course, the drug makers can push fresh winners out of their labs.
Democrats are reputed to be friendly with Fannie Mae and Freddie Mac, the mortgage repackagers, both of which have been closely scrutinized by Congressional Republicans in recent years. Shares of both government-sponsored enterprises have climbed about 20% in the past three months. It's hard to make a fundamental case for the stocks, given that Fannie and Freddie make their profits from the spread between long and short interest rates and by reselling mortgages to investors in its securities. But the interest-rate spread is almost flat and mortgage volume has slowed with the weakness in housing sales. So perhaps it is politics that is driving the stocks higher.
Outside of these examples, it's hard to see where a leadership switch in Congress presents you with a do-it-now action list. Keep in mind that a Republican, George W. Bush, will remain in the White House no matter what happens on Election Day. He'll be able to wield his veto against truly obnoxious anti-business legislation, and it's hard to imagine a Democratic landslide so great as to make Congress veto-proof.
Talk of sweeping health-care reforms, such as national health insurance, or a rollback of some tax cuts may make headlines. But Washington is famous, as the song goes, more for talk than for action. Ultimately, what powers the prices of the overwhelming majority of stocks are such basics factors as earnings, new products and the ability of companies to expand to new markets.
-
Dow Hits a Record High After December Jobs Report: Stock Market TodayThe S&P 500 also closed the week at its highest level on record, thanks to strong gains for Intel and Vistra.
-
Is Home Insurance Tax Deductible?With home insurance rates on the rise, you might be hoping to at least claim the cost as a tax deduction. Here's what you need to know ahead of tax season.
-
The December Jobs Report Is Out. Here's What It Means for the Next Fed MeetingThe December jobs report signaled a sluggish labor market, but it's not weak enough for the Fed to cut rates later this month.
-
If You'd Put $1,000 Into Lowe's Stock 20 Years Ago, Here's What You'd Have TodayLowe's stock has delivered disappointing returns recently, but it's been a great holding for truly patient investors.
-
If You'd Put $1,000 Into 3M Stock 20 Years Ago, Here's What You'd Have TodayMMM stock has been a pit of despair for truly long-term shareholders.
-
If You'd Put $1,000 Into Coca-Cola Stock 20 Years Ago, Here's What You'd Have TodayEven with its reliable dividend growth and generous stock buybacks, Coca-Cola has underperformed the broad market in the long term.
-
If You Put $1,000 into Qualcomm Stock 20 Years Ago, Here's What You Would Have TodayQualcomm stock has been a big disappointment for truly long-term investors.
-
If You'd Put $1,000 Into Home Depot Stock 20 Years Ago, Here's What You'd Have TodayHome Depot stock has been a buy-and-hold banger for truly long-term investors.
-
What the Rich Know About Investing That You Don'tPeople like Warren Buffett become people like Warren Buffett by following basic rules and being disciplined. Here's how to accumulate real wealth.
-
If You'd Put $1,000 Into Bank of America Stock 20 Years Ago, Here's What You'd Have TodayBank of America stock has been a massive buy-and-hold bust.
-
If You'd Put $1,000 Into Oracle Stock 20 Years Ago, Here's What You'd Have TodayORCL Oracle stock has been an outstanding buy-and-hold bet for decades.
