Yep, it might be reasonable to think that big banks are all in against Democrats this election cycle. It sure would be easy to be fooled by headline like this: "Wall Street shifting toward Republicans." That ran in the Washington Post in February. As the chart below illustrates, the "shift" was really a little less money to Democrats and just a tad more to Republicans. This wasn't a shift of epic proportions by any means.
That same Post article noted how JPMorgan Chase (NYSE: JPM) employees sent 76% of their politcal donations to Democrats in the third quarter of 2009, but 73% to Republicans in the fourth quarter. Oddly enough, the second-largest U.S. bank is the only member of its peer group whose political action committee (NYSE:PAC) is giving more to Democrats in 2010 than in 2008, according to Bloomberg News.
The same Bloomberg piece shows the Citigroup (NYSE: C) and Goldman Sachs (NYSE: GS) are splitting their contributions right down the middle this cycle. This is only noteworthy because they heavily favored Democrats in 2008, NOT because they're heavily Republicans in 2010. A spokesman from the Democratic National Committee is quoted in the Bloomberg article as saying "It's clear that if Republicans are handed back the keys, it's going to be the big Wall Street banks that are driving the car."
For investors, the most important thing is that whatever party is driving the financials car gets it headed back in the right direction. In some ways, it's hard to believe this September/October rally because financials haven't really participated and that's 15.45% of the S&P 500, or the index's second-largest sector weight, we're talking about.
Of course, there's always an alternative. Canadian banks have shown a very profitable divergence from their U.S. counterparts this year as illustrated by the chart below.
To be fair to the banks, they're probably not betting too heavily on Republicans simply because the Democrats are still the majority party. To be fair to investors, the political risks facing U.S. financials combined with low yields and lots of talk and little action in the way of dividend restoration make this group too much of crap-shoot. Wall Street may reap what it has sewn on Election Day, but that doesn't mean smart investors need to stick around for the fallout.
Committed to your Global Profits,
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