Investment pros say election's effects on markets overrated
Sep 09, 2012 (Menafn - Milwaukee Journal Sentinel - McClatchy-Tribune Information Services via COMTEX) --If President Barack Obama is re-elected, will Wisconsin companies such as ZBB Energy Corp., a Menomonee Falls developer of energy storage systems, see their fortunes -- and stock price -- rise?
Or if Mitt Romney wins in November, will Racine's Twin Disc Inc., a maker of power transmission equipment used in the petroleum and marine industries, get a boost?
Maybe, but don't count on it, investment professionals say.
How companies and their stock prices fare has a lot more to do with the business cycle -- with its periods of growth, stagnation and recovery -- than what any president seems to favor, they say.
"It's not elections that drive markets. It's interest rates and earnings," said Bob Landaas, president of the investment firm Landaas & Co. in Milwaukee.
Although clients always ask about the effect of the national elections on markets, there are much bigger factors that tilt them one way or the other, he said.
"The slowdown in China, the problems in Europe, to an extent the 'fiscal cliff' at the end of the year. I think the election pales in comparison to the big issues that ultimately matter," Landaas said.
Economist Sara Walker, senior vice president of Associated Trust Co. in Milwaukee, also finds herself frequently being asked by clients what effect the election might have on the stock market.
"It's definitely on their minds," Walker said. "It does influence investor behavior to a point, but not dramatically."
For all they promise, politicians can't make big changes in the direction and strength of an economy, she said.
"I pay attention to the election because everyone else is, but at the end of it all, I don't think they have much of an impact on the overall course of our economy," Walker said.
There is likely to be a "relief rally" when the election is over, not so much because of one man's expected policies, but because investors will know for certain -- regardless of the winner -- whose administration they will be dealing with for the next four years, she said. Investors don't like uncertainty, she said.
Some may benefit
Another economist, Brian Jacobsen, said some industries might do better depending on who wins the election.
"Financials, health care, energy and defense-related industries would likely do well if Romney wins the presidency," said Jacobsen, who is chief portfolio strategist for Wells Fargo Funds Management in Menomonee Falls and director of the financial planning program at Wisconsin Lutheran College.
"Municipal bonds could do better under Obama if wealthy investors think their taxes will go up," he said. "Alternative energy and infrastructure-related companies could do relatively well if Obama gets a second term."
But Jacobsen, too, sees greater influences on the markets than the presidential election.
"The European debt crisis and the global slowdown are probably more important," he said. "The election is a factor, but only one of many factors affecting the markets."
History shows the markets tend to go higher after a presidential election, Walker said. In the calendar year after an election, the average stock market return has been 8.59%, going back to 1948, she said. The market performs better in the year after an incumbent party wins, perhaps not only because uncertainty is resolved, but investors already know well who they will be dealing with for a full four-year term, she said.
Landaas said that, as of the end of last year, nearly 60% of earnings for the S&P 500 had come from people outside the United States -- many of whom "couldn't care less who's in our White House" -- buying American goods and services.
"What drives markets are earnings, and earnings continue to set records," he said.
Although investors are piling money into bond funds, it's not because they are sitting on the sidelines awaiting the outcome of the election, he said.
"The reason that I always give folks is that we're the victims of our most recent perception," Landaas said. "We tend to invest with a rearview mirror, and people have a very vivid memory of the financial crisis. And a lot of people weren't inclined to increase their risk, let alone assume risk, after the financial crisis."
But that means they missed out on better returns, he said.
"Bonds have done fairly well. A lot of bonds are up 5%, 6%, 7% for the year. So bonds are having a good run. But it's nowhere near the 13% that the stock market is up year to date," Landaas said.
Walker, who believes the economy is slowly "on the mend," said if Romney is elected and is able to repeal the Affordable Health Care Act, it's likely to hurt the health care industry because it already has been gearing up to comply with the law.
The fiscal cliff
As for the so-called fiscal cliff -- a mix of tax increases and large government spending cuts that some fear could prompt a recession -- the stock market already may have taken that into account and isn't expecting that it will come to fruition, Landaas said.
"I think there is a much bigger chance for a surprise on the upside," said Landaas. "Everybody knows that the economy is going to get hammered if they reduce government spending by 4%. I get the sense that nobody thinks that's really going to happen."
Jacobsen said some bumpiness in the market could be tied to how investors view the election.
"Each investor has his or her own reason for investing in what they do, but the election does loom as an issue," he said. "It's not so much as to whether the markets will do well, but which parts will do well. I think the Senate is more important than the president at this point. The Republicans have a tight grip on the House, so if the Senate flips Republican, the legislative path to dealing with taxing and spending issues becomes clearer. The president, ultimately, will probably kowtow to what gets put in front of him."
In any event, the days leading up to the election will be interesting for investors to watch, he said.
"When elections are close, which this one is, there tends to be more volatility in the markets," Jacobsen said. "When the election is a slam dunk, the market yawns at the outcome. This will not be a yawner."
The Wisconsin Ticker
If you invested 1,000, value as of: Sept. 1, 2012
Value
Monthly winners
1Waterstone Financial Inc. 1,456.46
2Quad/Graphics Inc. 1,190.38
3Oshkosh Corp. 1,125.22
4A.O. Smith Corp. 1,107.04
5Tufco Technologies Inc. 1,103.90
Monthly losers
1MGIC Investment Corp. 489.63
2Assisted Living Concepts Inc. 556.03
3Orion Energy Systems Inc. 663.68
4Magnetek Inc. 808.59
5School Specialty Inc. 839.29
Yearly winners
1Waterstone Financial Inc. 1,858.24
2Journal Communications Inc. 1,452.58
3First Business Financial Services Inc. 1,448.99
4Spectrum Brands Holdings Inc. 1,413.83
5A.O. Smith Corp. 1,413.72
Yearly losers
1School Specialty Inc. 296.53
2ZBB Energy Corp. 300.00
3Orion Energy Systems Inc. 391.53
4MGIC Investment Corp. 453.85
5Twin Disc Inc. 483.20
Source: Landaas & Co., Bloomberg Financial Markets
___ (c)2012 the Milwaukee Journal Sentinel Visit the Milwaukee Journal Sentinel
at www.jsonline.com Distributed by MCT Information Services
Copyright (C) 2012, Milwaukee Journal Sentinel
