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Monday, October 11, 2004
Market Recap
Crude oil reached another record high today. It is up $11.00 in the last 30 days, 65% YTD, and on a remarkable run. The volume in the market today was very low, I am sure it was due to the Columbus Day holiday. Those traders taking the day off to enjoy a three day weekend did not miss much at all in this market. The Dow was up +27 points, the NASDAQ gained +9 points, and the S&P gained +2 points.
Election Plays
There is one presidential debate left. So far there have been two debates from the presidential candidates and one debate with the vice presidential candidates. Each candidate has tried to express their views and corner the market on votes. I mentioned in a previous commentary that we would put together a list of stocks that will benefit or be hurt depending on the election results. Tonight we will list those sectors. This commentary is not about which candidate will win; it is about which sectors of the market we should look at after the election is over. We need to discuss the outcome of the election because it will have an impact on our trading no matter what the outcome is. There are certain sectors that will be on the move and others that will decline depending on who is in office.
Four More Years?
If President Bush is re-elected, there are some obvious sectors that will continue to benefit. Second term presidents are often more bold in their actions, because they know that they do not have to face a re-election again. Energy stocks are perhaps the most obvious sector that would benefit under President Bush. Oil stocks will also do well, in part to high oil prices, but also due to policies. I believe defense stocks will do very well under Bush, but not so well under Kerry. Kerry talks a big game on defense in his campaign but his 20 year senate record is contrary to his current views so I would not bank on defense if he gets elected. The pharmaceutical sector will also enjoy big benefits from Bush. A Bush victory would mean more benefits to the drug sector and to the entire health care sector in general. His policies towards drug costs and health care will continue to benefit this sector.
So, what sectors will not do well if Bush is re-elected? A Bush re-election would throw a wrench into alternative energy stocks in my opinion. He has more traditional values and policies on energy and he will need convincing on new technologies. Stem cell companies would certainly not benefit from a Bush re-election. His stance on stem cells has been very restrictive and it is not likely to change. Mortgage lenders will probably continue to suffer under Bush. Fanny Mae & Freddie Mac have come under increased scrutiny lately, although some scrutiny has been brought on themselves with some shady practices and Enron like accounting.
In addition to the stock sectors mentioned, we have to consider the overall economic impact as well. Bush has pushed for tax relief in the past and will continue to do so in the future. There are thousands of small businesses that pay taxes and these businesses are run by some wealthy individuals. These are the people Kerry wants to tax. If Bush is re-elected, tax relief is likely to help spur more jobs. It is the small companies that do most of the hiring today. Cut their taxes and they will have more money to invest in their businesses.
A New Man In Town?
John Kerry has been visible for many years as a senator, and based on his voting record and what we hear him saying on the campaign trail, we can speculate which sectors will benefit from a Kerry presidency, so long as he sticks to what he is saying in the campaign. One of the biggest beneficiaries is the alternative energy sector. Kerry has made alternative forms of energy a cornerstone of his campaign. Stem cell research is another subject Kerry is an advocate of and that sector will get a major boost if he is elected. We can assume that stem cell companies being opened up will also have an impact on the biotech sector in general.
Kerry will cause a lot of harm to the health care sector. Reductions in payments and subsidies and another run at a national health care system will cause quite a lot of damage to companies in this sector. Drug companies will also come under severe pressure under the Kerry plan. Traditional energy stocks may come under fire and despite what you are hearing in the campaign. Defense stocks will not do well if he is elected. Changes in environmental laws and regulations will have a huge negative impact on any manufacturing based company. This will cross many sectors and have a very profound effect on a number of stocks, and for this reason I believe the overall market may have some trouble gaining ground if he is elected.
In addition to the impact on the stock market, once again we must look at the economic impact as well. The reduction of tax breaks has been a huge stance of Mr. Kerry. He wants to raise the taxes on the rich, and you can bet he will raise taxes on the poor as well soon enough. The impact from the reduction of tax breaks would be felt far and wide. Couple that with an increase in regulatory issues and we will a huge impact on the somewhat fragile economy. Things are starting to show signs of improvement. The economy runs in cycles, and we are seeing some signs of an upturn. A Kerry victory could put that upturn in serious jeopardy. Small businesses would feel the most pain due to the tax increases. Business in general will be impacted by the taxes and the lack of consumers if the consumer's taxes go up. There will be even more impact from the additional regulations and restrictions put on their businesses.
Bull or Bull?
Come November, we will make a choice as a nation. Its impact will be felt across all sectors of the economy and across all stocks. This commentary is not about whose better for the nation. It is about how the outcome will affect our trading and the sectors involved. The bottom line is that this election affects our portfolios, and we want to have our money positioned in the right stocks for either outcome. Clearly we are hoping for the return of the bull soon. I just hope we have not been fed the bull in these debates.
OTC BB Watch List
- SUMU
- AOGI
- TKER
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