Most Americans believe that the economy is on the wrong track. For that matter, Bill Clinton believes the country is in a recession.
Polls don’t typically delve into why people believe the economy is in bad shape. However, it’s a pretty safe guess that citizens see declining home values and poor job prospects when making their assessments.
Not surprisingly, then, most people cringed at the White House’s assertion that the private sector is “doing just fine.” Granted, President Obama had been addressing relative hiring in his statement to the media (i.e., private payroll jobs versus government/public jobs). Yet that’s as dissatisfying as the mutual fund manager who touts losing -33% in 2008 when the S&P 500 relinquished -38%.
What’s more, businesses are practically paralyzed when it comes to the uncertainty surrounding the upcoming election. Typically, voters feel more comfortable ... more certain ... sticking with an incumbent. However, polls regularly show that Americans trust Romney more than Obama on improving the economy.
So why haven’t U.S. stocks corrected more than -9.9% ... with a slow-growing economy, dangerous signs from the employment front and Obama still favored to win the general election in November? Why is the S&P 500 actually up 4.1% year-to-date ... in spite of weakening GDP in China and a never-ending series of signs that the eurozone might crumble?
Some have suggested that the more negative the economic indicators, the better the chances for Mitt Romney. They also suggest that Romney would be infinitely better for corporations as well as shareholders. Is it because Romney brings greater certainty to the taxation/regulation table, freeing up the decision-making of corporate leadership?
Is it possible that we’ll see a Romney rally in stocks here in 2012? Are we already seeing “stealth support” at key trendlines and important psychological declines (the “10% correction”) because of the challenger?
I think it goes deeper than the psychology behind Romney’s chances. I think it goes more to a probable Republican victory if Romney picks Marco Rubio as a running mate.
Marco Rubio virtually assures that the GOP would win one of the most important prizes of the Electoral College: Florida. He increases voter turnout by firing up conservatives in the Republican Party. Rubio helps with Hispanic votes in swing states like Nevada and may make Obama campaign harder in places like California. He (Rubio) appeals to women and minorities in ways that Romney does not.
Below are three ETFs that should surge if the market becomes convinced of a Romney-Rubio victory. Note: None of these ETFs are “buys” today, where I am managing uncertainty with higher yields and lower risk investments.
1. iShares Dow Jones US Oil Equipment and Services (IEZ) tracks an index of stocks that provide oil drilling equipment and expertise to producers. Think Halliburton (HAL), Schlumberger (SLB) and Baker Hughes (BHI). Why would IEZ do well with Rubio in the “Veep” spot? He is a staunch advocate for drilling in the Arctic National Wildlife Refuge (ANWAR) and recommends leasing of oil and natural gas fields in the outer continental shelf as well as federally owned lands with oil shale.
2. PowerShares Global Listed Private Equity ETF (PSP). Rubio is a tea party “fave,” not Romney. Yet both men have slammed the new financial regulatory reform, vowing to repeal the legislation. It’s hard to imagine a larger beneficiary of greater freedoms in finance than the companies whose principal business is to invest in and lend capital to other entities. Similarly, few areas have been as rocked by increased regulations and disincentives for free enterprise as the world of private equity.
It may be difficult to tolerate the volatility of PSP this early in a campaign. Then again, there’s a 6.8% annualized yield and the reality that Romney founded a private equity/venture capital firm in the 80s, Bain Capital.
3. The iShares Dow Jones U.S. Healthcare Providers Index Fund (IHF). Rubio would like to repeal “Obamacare” and replace the current legislation with free market ideas to make healthcare more accessible/affordable. Those ideas include allowing individuals to purchase health insurance across state lines and/or give tax breaks to individuals who purchase it. The biggest companies like Cigna (CI) and ExpressScripts (ESRX) might see profit margins compressed by increase competition, but ultimately, the reduced regulation should benefit the best providers.
Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.