When Hope and Change Replace Earnings Reports?
In case you haven’t heard by now, Obama’s first 100 days have come and gone and despite what you may have been led to believe, you are still here. You’ve persevered through the bank stress tests, you’ve outlasted the dreaded swine-flu, and you’ve overcome all of the failed policies of every President ever to not be named Barack Obama. Now what?
As I look at my measly 401K balance, I’m trying to get a handle on where my investment dollars should be allocated going forward (for a less tongue-in-cheek answer click
here). A natural tendency would be to just do the opposite of what I did last year in some Costanza-like paradigm shift for my investing strategy. But this time it’s different. Gone are the days of free-market capitalism; say hello to direct government participation!
We already know that Obama likes to moon-light as a stock market guru, but can we be sure that his policies and rhetoric will be good for private business? Well that all depends. Look no further than the proposed budget and the stimulus program. The devil is in the details, as they say.
There’s plenty of talk about which sectors of the economy might do well and which might not. Let’s take a look at a few of them:
First the GOOD (companies that should benefit the most):
Alternative energy. A mainstay of Obama’s platform, green energy companies stand to receive a large portion of the stimulus package. In fact, some folks claim that clean energy stocks will be to this decade what internet stocks were to the late 1990s. Don’t believe me? Check out First Solar (FSLR).
Basic materials. These stocks will benefit from all of the new construction initiatives that have been put forth. Caterpillar (CAT) and US Steel (X) could do well.
Now the BAD (companies that may benefit although too early to tell):
Healthcare. There’s been a lot of talk recently about the universal healthcare program and whether or not it will be good for healthcare stocks, particularly the insurers. These companies have already agreed to price-cuts which could affect profitability. Not to mention that the details of how the plan is going to work have not been released yet. Aetna (AET) and United Healthcare (UNH) could be in play.
Financials. A necessary evil. Obama has not hid his disdain for this group, and they have received a lot of TARP money. Whether or not they can return to profitability remains to be seen. Keep an eye on Citigroup (C), Wells Fargo (WFC), and Bank of America (BAC).
And the UGLY (companies that must defy the odds to do well):
Big Oil. The only group hated as much as the financial sector. The antithesis to green energy stocks. They have already had tax considerations reduced, are getting no stimulus money, and have been publically castigated. Look out Exxon (XOM) and Chevron (CVX).
Defense. The biggest cuts in the Obama Budget have been in
defense and military spending. This could make it a challenging environment for defense contractors General Dynamics (GD) and Raytheon (RTN).
These are just a few of the domestic themes which have yet to be played out here in the US. But does this mean that the “good” sectors should be bought, and the “ugly” should be sold?
Not necessarily. There are many different factors that go into choosing an investment besides what the President of the United States likes best. The overall investing climate is affected by factors such as inflation, taxes, interest rates, employment and so forth. That is why it is so important, especially in today’s investing environment, to learn about the different relationships and factors that affect your investments.
