FINANCIAL COLUMNISTS Bully For Obama Ken Fisher 05.19.08, 12:00 AM ET I get the sense, talking to U.S. investors, that a lot of them are terrified of what an Obama presidency would do to their portfolios. They shouldn't be. Election outcomes don't affect markets the way you expect them to. The U.S. has a long history of elections and S&P 500 returns, and the pattern is pretty clear. First, years in which Democrats capture the White House are usually bullish years for the stock market. Second, inaugural years following a Democratic win in November are better than Republican inaugural years. There is a reason for this pattern. The market expects the worst of a Democratic President and then discovers that he's not so bad for investors. It tends to rebound after the initial premonitions that a Democrat will win. On the other hand, Wall Street expects the most of a Republican and is disillusioned after the election. The average performance for years with Democrats elected is dragged down by two exceptional years. One was 1932, as FDR won and the Great Depression bottomed. The S&P slipped 8.9% that year (including dividends). The other year was 1940, another FDR win, this time with war under way in Europe. The market was off 10%. Take away those two bad years and you find that election years with Democrats winning have always been positive for the market. If the U.S. elects Obama and history's pattern prevails, expect 2008 to be positive but below average and 2009 to be above average. If McCain is elected, 2008 won't be so bad, but 2009 will be a disappointment. Republican inaugural years (there have been ten since 1925) have delivered an average 0.5% loss for the market. Only three Republican inaugural years were positive; seven were negative. Loser years include the first years in both of Eisenhower's and Nixon's two terms and in Reagan's first term, George W. Bush's first term and, of course, Hoover's single term. In inaugural years we discover that Democratic presidents are phonies and never meant most of what they said in their populist, anticapitalist campaigns. They could never get reelected if they really delivered on their campaign promises. Inaugural years for Republican presidents remind us that they are phonies, too; they don't do much for the economy or for investors. We get disappointed and pummel stock prices. The three-month period ending in January gave us the first big global market correction since 1998. Investors and the media still fear their own shadows. Stocks should rise regardless of who winds up in the White House. Here are some megacap stocks of the sort I have been favoring for 2008. Banco Bilbao Vizcaya (23, BBV), with a market cap of $85 billion, is among the few big banks still positioned for growth. It has 45% of its profits coming from emerging Hispanic-American markets and a tiny U.S. exposure, with an appetite to grow in America via acquisition. This full-service bank with headquarters in Spain deserves to sell at much more than eight times earnings. It has a 4.8% dividend yield. The Swiss firm Novartis (nyse: NVS - news - people ) (50, NVS) has branded and generic pharmaceuticals, vaccines and diagnostic tools. It also has a long line of nonprescription drugs like Bufferin, Excedrin, Desenex and Maalox. It just bought 25% of eye-care leader Alcon (nyse: ACL - news - people ), with a right to buy control. At 12 times 2008 earnings this $111 billion (market value) growth company has lots of upside potential. The dividend is 3%. Daimler's acquisition and sale of Chrysler was stupid. But now Daimler (77, DAI) returns to its Mercedes brand, the essence of quality. The high end of autos, like housing, is holding up better than the overall industry. You're paying nine times estimated 2009 earnings. The $82 billion market value is 50% of sales. You get a 4% dividend. The experts are telling us that lower oil prices lie ahead. I'm not so sanguine about that forecast, partly because I am bullish about the world's economy and expect that demand for oil will be surprisingly strong. Hence I like Royal Dutch Shell (nyse: RDSA - news - people ), with a $239 billion market value. The company is comparable to ExxonMobil (nyse: XOM - news - people ), but its A shares (80, RDS.A), and B shares (80, RDS .B ) are cheaper than Exxon shares at eight times likely 2008 earnings and 70% of annual sales. The A shares yield 3.7%, the B shares 3.8%. A smaller and more speculative investment is Sara Lee (nyse: SLE - news - people ) (15, SLE). This poorly managed and slowly melting block of ice has great brand names. Even in a cooled-down takeover market it seems to me a likely target. It sells at 14 times likely 2008 earnings and 80% of sales. Market capitalization is $9.8 billon, yield 3%. Money manager Ken Fisher's latest book is The Only Three Questions That Count (John Wiley, 2007). Visit his homepage at www.forbes.com/fisher.
Ken fisher is wrong this time. Obama has already said he will raise taxes across the board (income and capital gains). This WILL hammer the markets, as well as send capital overseas chasing lower taxes. In the 80's the US had higher capital gains and the markets boomed. The problem is that the rest of the world has lowered capital gains taxes since then. If we raise ours, billions in capital goes bye bye. My fear of Obama's wealth redistribution plans are really the only reason why I won't vote for him. Combined with a liberal congress, I fear he would cripple the economy. Not in a cyclical manner such as like we are experiencing now, but in a dramatic collapsing manner.
I wonder if the people who create these "studies" that show markets under democrats, are even slightly aware that markets are discounting mechanisms. Market performance from the time someone is installed in office doesn't even tell half the story.
What a brilliant reply there 5287. Idiot. BTW, trading is my only income, and I've been at it full time since '87. This is a moot point, however, as my reply had nothing to do with my income. It was pure economics (in which I hold several degrees BTW). I hate it when people here turn civil discussions into personal attacks. There is absolutely no reason for it.