Nov
5
The effect of presidential election on S&P 500 Index
Posted by: Kevin Yu | November 5, 2012 | Leave a Comment
With the current presidential poll standing at 49% for Obama and 48% for Mitt Romney, No one can determine with exact prediction who will be the president of United States for 2013 to 2017 period; however general consensus is leaning more towards Obama’s victory. In order to hypothesize how S&P 500 will be affected for the upcoming year, it is important to realize the difference of policies enforced by each candidates.
Obama’s Policies (Shaped by 2008 Financial Crisis)
1. Monetary policy over fiscal policy(printing out more money) → Inflation → Consumer
purchasing power down → less investment on S&P 500 → Stock price decline
2. Energy + info-tech support: As can be seen from the pie diagram below, Energy and info-tech
sector take approximately 31.8% of S&P 500 index. These two sectors are likely going to benefit
from Obama’s victory, as they have done in the past 4 years.
3.Tax cut to middle-income family & stricter regulation towards high-income families
4. Proposes new tax credit for Small Business(cap at $500,000) → negative impact for S&P 500
which is composed of big-marketcap companies:
“a company would get credit against income taxes worth up to 10 percent of the increase in
total wages in 2012, which could come either in the form of salaries for new hires or raises. A
company that increased its payroll by $4 million would see a $400,000 income tax credit.”
5. Info tech and Telecom stocks lead the market if Obama wins.
Mitt Romney Policies
1. Increase government spending on National Defense/utility related stocks
2. Not reappoint Bernanke when his term ends in 2014. Bernanke, the head of Federal Reserve,
contributed to a major increase (73.2%) in S&P 500 index since Obama’s inauguration in 2009.
Replacing him would have a significant impact on the index.
3. Support Consumer Staples, Financials, and Health-care based companies that lie on S&P
500 index.
4. Create more JOBS ← to do this support Big companies that mainly occupies S&P 500, by
reducing corporate income tax down to 25%
Sources Sited
Durden, Tyler. “If Obama Wins, Buy IT, Telecom, Sell Materials, Healthcare; If Romey: Buy Staples, Healthcare, Fins, Sell Materials.” ZeroHedge. N.p., 27 Oct. 2012. Web. 05 Nov. 2012. <http://www.zerohedge.com/news/2012-10-27/if-obama-wins-buy-it-telecom-sell-materials-healthcare-if-romey-buy-staples-healthca>.
Picture Credit
“Why Black People Should (or Should Not) Vote for Obama In 2012.” Breaking News for Black America. NewsOne Staff, 13 Mar. 2012. Web. 05 Nov. 2012. <http://newsone.com/1935105/why-black-people-should-or-should-not-vote-for-obama-in-2012/>.
Mcadams, David. “The Oligarch Kings.” The Oligarch Kings. N.p., 18 July 2010. Web. 05 Nov. 2012. <http://theoligarchkings.wordpress.com/2010/07/18/mitt-romney-for-2012/>.