Sector ETFs for Obama and the Fiscal Cliff
November 13th, 2012 at 7:53am by Tom Lydon
Investors took bets ahead of the election with sector exchange traded funds in coal, clean energy, healthcare and other industries. Now with President Barack Obama securing his second term, the market’s attention is back on the fiscal cliff and the expiration of the Bush-era tax cuts.
In a research note, S&P Capital IQ Chief Equity Strategist, Sam Stovall, highlighted the election’s impact on the energy, financial and health care sectors.
The Obama administration has taken a broad stance on U.S. energy needs, except it will likely maintain an anti-coal attitude. [Four ETFs for an Oil Rebound]
“We believe it is more accurate to say that the U.S. has no energy policy,” Stovall wrote in the note. “The official position is to be in favor of everything – more drilling, yet also more clean energy, which is effectively the same as prioritizing nothing.”
- Energy Select Sector SPDR (NYSEArca: XLE)
- Vanguard Energy ETF (NYSEArca: VDE)
- PowerShares WilderHill Clean Energy Portfolio (NYSEArca: PBW)
- Market Vectors Global Alternative Energy ETF (NYSEArca: GEX)
In the financial sector, most borrowers are waiting on the outcome of the fiscal cliff. Meanwhile, the QE3 mortgage-backed securities buying program is pressuring interest rates in banks’ investment portfolios. [Obama Victory, Fiscal Cliff Cloud Financial ETFs]
“We believe the two main negatives affecting the U.S. banking industry today, in our opinion, are the upcoming fiscal cliff, and the low interest rate environment,” Stovall added. “We see taxes going up on higher income individuals, as well as proprietors of successful mid-market businesses, which is a negative for capital formation and spending, and will likely constrain loan growth.”
- Financial Select Sector SPDR Fund (NYSEArca: XLF)
- SPDR KBW Bank ETF (NYSEArca: KBE)
- SPDR KBW Regional Banking ETF (NYSEArca: KRE)
Now that the Democratic party has a hold of the executive branch and Senate, the Affordable Care Act, or “Obamacare,” will likely be implemented.
“However we still see some challenges ahead and believe it is possible President Obama may make a few tweaks as part of any budget or fiscal cliff negotiations,” Stovall said. “The main challenges that we see include the creation of state healthcare exchanges, Medicaid expansion, and the medical device tax.”
Many states are slow in placing a healthcare exchange program, with some even not deciding to support it. Medicaid is expected to add 16 million newly insured Americans over the next decade, but could be limited as part of the deficit reduction plan. The medical devices tax has drawn a lot of criticism as some companies argue it will lead to job loss, but Congress is thinking about a repeal.
- Health Care Select Sector SPDR Fund (NYSEArca: XLV)
- iShares Nasdaq Biotechnology Index Fund (NYSEArca: IBB)
- Vanguard Health Care Index Fund (NYSEArca: VHT)
For more information on sector funds, visit our sector ETFs category.
Max Chen contributed to this article.
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.