While both Mitt Romney and President Barack Obama claim the other will drag the U.S. economy down, stocks and exchange traded funds will likely continue to expand as the markets gain momentum.
Consumer spending is rising, employment numbers are improving, home prices are recovering and banks are dishing out loans again, report Rich Miller and Steve Matthews for Bloomberg. [Presidential Election: ETFs for an Obama or Romney Victory]
Peter Hooper, chief economist at Deutsche Bank Securities, attributes pent-up demand as the main driver for economic expansion ahead. Since households have tightened their belts during the recession and its aftermath, consumers are now beginning to feel more optimistic
“Housing typically adds 1 to 2 percentage points” over a recovery, Dean Maki, chief U.S. economist at Barclays Plc, said in the article. With less distressed properties on the market, “you may get a bigger kick from housing” in 2015 and 2016.
“The die is cast for a much stronger recovery,” Mark Zandi, chief economist for Moody’s Analytics Inc, said in the article, projecting an economic expansion of about 2% next year before doubling to around 4% in 2014 and 2015.
Eric Green, a fund manager at at Penn Capital Management Co., believes GDP “will surprise to the upside. We could grow at a 3 to 4 percent rate over the next couple of years.”
However, the caveat is how the president elect will manage the $1.1 trillion federal budget deficit – the Congressional Budget Office has cautioned that the U.S. could drop into recession if over $600 billion scheduled government-spending reductions and tax increases automatically kick in after the “Fiscal Cliff.”
Green points to manufacturers, materials producers, energy and technology sectors for the rosier outlook.
- Industrial Select Sector SPDR Fund (NYSEArca: XLI)
- iShares Dow Jones US Industrial Sector Index Fund (NYSEArca: IYJ)
- Materials Select Sector SPDR Fund (NYSEArca: XLB)
- Vanguard Materials ETF (NYSEArca: VAW)
- Energy Select Sector SPDR Fund (NYSEArca: XLE)
- Vanguard Energy Index Fund (NYSEArca: VDE)
- Technology Select Sector SPDR Fund (NYSEArca: XLK)
- Vanguard Information Technology Index Fund (NYSEArca: VGT)
On the other hand, “defensive” sectors, like real-estate investment trusts, health- care providers and consumer staples, will not do as well.
- Vanguard REIT ETF (NYSEArca: VNQ)
- Health Care Select Sector SPDR Fund (NYSEArca: XLV)
- Consumer Staples Select Sector SPDR Fund (NYSEArca: XLP)
For more information on sector funds, visit our sector ETFs category.
Max Chen contributed to this article.