PersonalFinance: Surviving in an election year
(Linda Stern is a freelance writer. Any opinions in the column are solely those of Ms. Stern. You can e-mail her at lindastern@aol.com.)
By Linda Stern
WASHINGTON, Aug 27 (Reuters) - Election years are usually good for the stock market, but this year it looks like someone forgot to tell Wall Street.
Nevertheless, early losses could turn around and become end-of-year gains as the campaigns get into full swing and investors turn more optimistic about the future and the likelihood of the nation's problems being addressed.
Different sectors could be expected to do better, depending on whether Barack Obama or John McCain emerge with the win, but that may not be as sharply delineated as expected.
Both parties say they'll take aim at the high cost of health insurance, for example. And the government can be expected to continue throwing big dollars at defense and national security contracts for years to come, regardless of which candidate wins and how quickly the U.S. pulls personnel out of Iraq.
That said, political years and their aftermath can be profitable. Here's how to read the signs and be in the right place at the right time.
-- Be in the market. The last 7 months of presidential election years have shown gains on Wall Street 13 out of 14 times since 1950, reports the Stock Trader's Almanac. The sole exception was in 2000, when the election's outcome was delayed in uncertainty for more than a month. Stocks have already taken a beating this year. Long-term investors should be in it for the long term, and may find some bargains if they shop now.
-- Drill down to interpret events that might not be obvious. For example, you might expect the regulation-oriented Democrats to be bad for the credit-card issuing banks. But, not so fast! It's easy to foresee a chain of events in which Senator Joe Biden, elected vice president, is replaced on the Foreign Relations committee by Senator Chris Dodd, who had been holding credit card issuers' feet to the fire as chairman of the Senate banking committee. His own replacement is likely to be fellow Democrat Senator Tim Johnson, of South Dakota, one of the bank-friendliest states in the country, and the place where many credit card contracts originate.
-- Sometimes obvious is right. A Democratic White House and Congress can be expected to send more money to environmental and alternative energy companies; Obama has also said he would spend money on technology and infrastructure. A McCain White House would likely fund more drilling, more coal, more nuclear power. Invest accordingly, but either way, know that energy stocks have already been bid up significantly.
-- Consider the tax situation. Whoever wins the White House will be facing enormous federal deficits. Obama wants to trim them by raising taxes on the wealthiest Americans. McCain's plan raises taxes slightly on some corporations but generally keeps Bush tax cuts in force. Any effort to fix the deficit by either candidate (or by the likely-Democratic Congress) could result in higher income, capital gains, and dividend taxes, all presently near historically low levels. To profit, take your losses now, and also consider converting traditional IRAs to Roth IRAs this year, while weak markets may have held account values down and comparatively low income tax rates are in force.
-- Retailers could be a mixed bag. Obama intends to put more money in the hands of lowest income working Americans through increased tax credits. Perhaps they'll be able to spend more at stores like Wal-Mart and Target. Upper income households could be squeezed by higher taxes if Obama wins, hurting luxury categories. Because of current deficits, both candidates face a limited ability to stimulate a so-so economy, so stores and shopping malls may remain weak for a while, regardless of who wins.
-- The housing cycle may be following its own election-independent rhythm. Both candidates like home ownership. Obama would encourage it with a tax deduction even for non-itemizers. Some markets are reporting renewed interest in home sales. If you're looking to buy a house, don't worry that one candidate or the other will greatly affect the housing market over the next year. If you want to invest in real estate companies, you can still probably take a wait-and-see approach.
(Editing by Gunna Dickson)
By Linda Stern
WASHINGTON, Aug 27 (Reuters) - Election years are usually good for the stock market, but this year it looks like someone forgot to tell Wall Street.
Nevertheless, early losses could turn around and become end-of-year gains as the campaigns get into full swing and investors turn more optimistic about the future and the likelihood of the nation's problems being addressed.
Different sectors could be expected to do better, depending on whether Barack Obama or John McCain emerge with the win, but that may not be as sharply delineated as expected.
Both parties say they'll take aim at the high cost of health insurance, for example. And the government can be expected to continue throwing big dollars at defense and national security contracts for years to come, regardless of which candidate wins and how quickly the U.S. pulls personnel out of Iraq.
That said, political years and their aftermath can be profitable. Here's how to read the signs and be in the right place at the right time.
-- Be in the market. The last 7 months of presidential election years have shown gains on Wall Street 13 out of 14 times since 1950, reports the Stock Trader's Almanac. The sole exception was in 2000, when the election's outcome was delayed in uncertainty for more than a month. Stocks have already taken a beating this year. Long-term investors should be in it for the long term, and may find some bargains if they shop now.
-- Drill down to interpret events that might not be obvious. For example, you might expect the regulation-oriented Democrats to be bad for the credit-card issuing banks. But, not so fast! It's easy to foresee a chain of events in which Senator Joe Biden, elected vice president, is replaced on the Foreign Relations committee by Senator Chris Dodd, who had been holding credit card issuers' feet to the fire as chairman of the Senate banking committee. His own replacement is likely to be fellow Democrat Senator Tim Johnson, of South Dakota, one of the bank-friendliest states in the country, and the place where many credit card contracts originate.
-- Sometimes obvious is right. A Democratic White House and Congress can be expected to send more money to environmental and alternative energy companies; Obama has also said he would spend money on technology and infrastructure. A McCain White House would likely fund more drilling, more coal, more nuclear power. Invest accordingly, but either way, know that energy stocks have already been bid up significantly.
-- Consider the tax situation. Whoever wins the White House will be facing enormous federal deficits. Obama wants to trim them by raising taxes on the wealthiest Americans. McCain's plan raises taxes slightly on some corporations but generally keeps Bush tax cuts in force. Any effort to fix the deficit by either candidate (or by the likely-Democratic Congress) could result in higher income, capital gains, and dividend taxes, all presently near historically low levels. To profit, take your losses now, and also consider converting traditional IRAs to Roth IRAs this year, while weak markets may have held account values down and comparatively low income tax rates are in force.
-- Retailers could be a mixed bag. Obama intends to put more money in the hands of lowest income working Americans through increased tax credits. Perhaps they'll be able to spend more at stores like Wal-Mart and Target. Upper income households could be squeezed by higher taxes if Obama wins, hurting luxury categories. Because of current deficits, both candidates face a limited ability to stimulate a so-so economy, so stores and shopping malls may remain weak for a while, regardless of who wins.
-- The housing cycle may be following its own election-independent rhythm. Both candidates like home ownership. Obama would encourage it with a tax deduction even for non-itemizers. Some markets are reporting renewed interest in home sales. If you're looking to buy a house, don't worry that one candidate or the other will greatly affect the housing market over the next year. If you want to invest in real estate companies, you can still probably take a wait-and-see approach.
(Editing by Gunna Dickson)
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