Barron's Post-Election Sector Analysis

by: SA Eli Hoffmann

Excerpt from our One Page Barron's Summary (receive it weekly by email by signing up here):

Anatomy of a Miscalculation by Jim McTague

Highlighted companies: Cisco Systems Inc. (NASDAQ:CSCO), Microsoft Corp. (NASDAQ:MSFT), Amgen Inc. (NASDAQ:AMGN), Merck & Co. Inc. (NYSE:MRK), Pfizer Inc. (NYSE:PFE), Johnson & Johnson (NYSE:JNJ), Fannie Mae (FNM), Freddie Mac (FRE)
Summary: Despite Barron's prediction to the contrary, the Democrats won both the Senate and the House in this week's elections. While analysts agree there will be economic change, they also agree that change is likely to be moderate, considering the Democrats' narrow majority, and that market impact is likely to be small. David Prokupek of Geronimo Financial Asset management: "I'm not too worried about the political climate. Our biggest concern is that earnings on the S&P are forecast to decline on a year-over-year basis, starting in the fourth quarter of next year. Historically, that's not good for the equity markets." He advises modest equity exposure, sticking to large global-caps, and being short the yield-curve. But Bob Doll of BlackRock says that, "over the long term, the outlook remains bright."
Some sector-specific advice:

  • Cisco Systems Inc. (CSCO), Microsoft Corp. (MSFT), Amgen Inc. (AMGN) -- will continue to dominate their markets globally and weather any adversity.
  • To weather inflation: Energy, gold, commodities.
  • All analysts agree: Ditch pharmaceuticals due to Congress seeking Medicaid price concessions. Merck & Co. Inc. (MRK), Pfizer Inc. (PFE), Johnson & Johnson (JNJ) were down 5%+ post-election.
  • Restaurants: Minimum wage increase will hurt them.
  • Oil companies: They will be hit by tax-benefit elimiation/windfall tax.
  • Defense: Could be hurt by an Iraq pullback.
  • Alternative energy: Might benefit from legislation to reduce U.S. oil dependency.
  • Insurance: Could win from an extension to Democrat-supported Terrorism Risk Insurance Act.
  • Lenders: Fannie Mae (FNM) and Freddie Mac (FRE) could get regulatory relief.
Quick comment: More post-election commentary: Sector Week-in-Review: Healthcare Takes a Hit on Election ResultsBloggers' Take on The U.S. ElectionAn Election Post-MortemWhat Does a Democratic Victory Mean for the Defense Sector?Washington and the Bond Market

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