Obama, McCain Will Impact Market, ETFs in Different Ways
October 29th, 2008 at 1:00pm by Tom Lydon
Only one thing is this election is for certain: the outcome will have an effect on the markets and exchange traded funds (ETFs) in one way or another.
This is the first time in 76 years that an election is taking place during a financial meltdown/crisis. Ben Steverman for BusinessWeek reports that based on recent polls, the coincidence seems to have boosted the chances that Illinois Sen. Barack Obama, the Democratic nominee, will defeat Republican Arizona Senator John McCain on Nov. 4.
The biggest myth concerning the stock market and the election is that the market is waiting to see who wins the election. If the polls are to be believed, there is little doubt who will win at this point in time and stock traders are used to weighing probabilities, looking at data, and making investing bets based upon them.
For example, a win for Sen. Obama would send alternative energy ETFs and stocks higher, while health care would suffer based on the notion that Obama would crack down more on high malpractice insurance costs and their effect on the overall health care industry, reports Paul R. LaMonica for CNN Money.com.
An ETF that could be impacted is Van Eck Market Vectors Global Alternative Energy (GEX).
A win for McCain, the Republican party candidate, would send aerospace and defense stocks and ETFs into the air, but coal and ethanol would wither. Nuclear energy would also benefit under McCain’s presidency.
PowerShares Global Nuclear Energy Portfolio (PKN) could be impacted in a McCain win.
As the financial headlines remind us daily, the next president will have to answer two important questions: How much will his proposals cost, and where will we get the money? This is especially true in regards to America’s aging infrastructure, which is deemed the “$1.6 Trillion Question.”
Over the next five years, we could potentially need $1.5 trillion to expand and modernize America’s infrastructure problems. Harold L. Sirkin for BusinessWeek says that infrastructure expenditures we make today are intended to work for us for the next 30 to 100 years. Investing in infrastructure creates value for the economy, which increases our competitiveness.
- iShares S&P Global Infrastructure Fund (IGF)
- Market Vectors Steel (SLX)
One simple question with no simple answer has centered around the small-business owners of the world – the “Joe the Plumbers,” if you will. First, the definition of small business varies, with a two-person enterprise qualifying, as well as a construction company with $33.5 million or less in sales, according to the Small Business Administration.
Sen. Obama’s plan would raise the marginal tax rate on incomes above $250,000 a year to 36% and 39.6%, from the current 33% and 35%, effectively returning top tax rates to their levels during the 1990s. Sen. McCain has proposed reducing corporate tax rates from 35% to 25%, but that would only potentially affect about a quarter of small-business owners, reports Amy Schatz for The Wall Street Journal.
Sen. Obama would raise capital gains tax rates for families earning more than $250,000 to 20% from 15%. But the Obama plan would eliminate capital gains taxes for investors and entrepreneurs in small firms. Neither candidate is concrete on definitions or restrictions and benefits when it comes to this topic.
How are both candidates going to preserve our technological innovation as well as expand on it? Their visions are polar opposites and the gap is widening at $60 billion. McCain’s deal seeks to encourage innovation by cutting corporate taxes and ending what he calls “burdensome regulations” that he says inhibit corporate investment.
Sen. Obama feels that the United States must compete far more effectively against an array of international rivals who are growing more technically adept. Obama looks to the federal government to finance science, math and engineering education and the kind of basic research that can produce valuable industrial spinoffs, report William J. Broad and Cornelia Dean for The New York Times.
- Technology Select Sector SPDR (XLK)
Jackie Calms for The Wall Street Journal reports that there are two anecdotes for the economic crisis. McCain claims he will help create more jobs in America, present tax cuts to create more jobs and help protect life savings. Obama claims he will create five million new high-wage jobs simply by investing in alternative energy, and create two million more jobs by rebuilding infrastructure, starting with roads and schools.
Emily Brandon for US News & World Report reports that the “icing” on the economic packages proposed include Obama’s 90-day moratorium on foreclosures from banks that receive capital from the Federal government. McCain presents a $300 billion plan for government to purchase unaffordable mortgages from troubled borrowers and exchange them for less-expensive fixed-rate loans backed by the Federal Housing Administration.
- SPDR Homebuilders (XHB)
If Sen. McCain or Sen. Obama lives up to even part of his agenda, it will make a difference not only to your tax bill next year but also to your family’s long-term financial security, reports Pat Regnier for CNN Money.
Whether you’re talking about financial market regulation, income taxes, retirement savings or paying for health care coverage, Obama is much more likely to have the federal government intervene in the name of “American families”. McCain, on the other hand, puts more faith in the marketplace and both individual and corporate enterprise.
- iShares Dow Jones US Financial Sector Index Fund (IYF)
Despite the worsening economic picture, though, neither candidate has signaled any intention to scale back his plans. And the head of the Senate Finance Committee, which would have a big say in just about everything the next president hopes to accomplish on health care, says he won’t let the current financial crisis stop the committee from tackling it. Both McCain and Obama have big-ticket ideas about health care reform and how to obtain it, reports Kevin Freking for Associated Press.
While both Obama and McCain propose overall cuts, is there any specifics that are guaranteed? Some analysts suggest that investing in muni-bond ETFs is an attractive option, as big federal budget deficits are looming and expected to grow, reports The Wall Street Journal.
- PowerShares Insured National Municipal Bond Portfolio (PZA)
In reference to McCain’s housing proposal, experts are skeptical, as the toxic loans have been sliced and diced so much they are hard to re-package. Julie Hirschfiled Davis for Associated Press says even if the government did gain access to the mortgages, it would have to pay far more than they would ever be worth, housing specialists said Wednesday.
As the election day nears, both candidates have done their best to put out proposals that address the specific economic problems that appear most dire to them.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.