If the polls and the pundits are right, the Democrats will take over the House of Representatives next January, and they may be in control of the Senate as well. So is it time to adjust your portfolio on the basis of what the Democrats might do once they're in power? Perhaps, but playing sector politics is far easier said than done.
Consider the raising of the federal minimum wage, a Democratic priority and a measure that even some Republicans will likely support. A higher minimum would probably be seen as a negative for shares of McDonald's and other fast-food companies. But populous states such as California, Florida, Illinois, New Jersey and New York already require higher wages than the federal minimum of $5.15 per hour. Our guess is that another scare about mad-cow disease would hurt Mickey D's more than higher starting wages, which reduce employee turnover anyway.
A Democratic rout on Election Day could mean cuts in military spending. Companies such as Northrop Grumman and Oshkosh Truck could suffer if defense spending is reduced. So could their shareholders.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Democratic legislators are expected to propose a sharp reduction in student-loan interest rates, which the government boosted a few months ago. Presumably, this would make a few investors skittish about investing in SLM, the former Sallie Mae.
And Wall Street believes, with good reason, that the Democrats want to rewrite the Medicare law so that the government could bargain for (presumably) lower drug prices with pharmaceutical manufacturers. In 2003, the drug makers persuaded the Republican-led Congress to block such a provision. Even if Congress doesn't approve such legislation soon or ever, investors in big pharma may be facing a headwind -- unless, of course, the drug makers can push fresh winners out of their labs.
Democrats are reputed to be friendly with Fannie Mae and Freddie Mac, the mortgage repackagers, both of which have been closely scrutinized by Congressional Republicans in recent years. Shares of both government-sponsored enterprises have climbed about 20% in the past three months. It's hard to make a fundamental case for the stocks, given that Fannie and Freddie make their profits from the spread between long and short interest rates and by reselling mortgages to investors in its securities. But the interest-rate spread is almost flat and mortgage volume has slowed with the weakness in housing sales. So perhaps it is politics that is driving the stocks higher.
Outside of these examples, it's hard to see where a leadership switch in Congress presents you with a do-it-now action list. Keep in mind that a Republican, George W. Bush, will remain in the White House no matter what happens on Election Day. He'll be able to wield his veto against truly obnoxious anti-business legislation, and it's hard to imagine a Democratic landslide so great as to make Congress veto-proof.
Talk of sweeping health-care reforms, such as national health insurance, or a rollback of some tax cuts may make headlines. But Washington is famous, as the song goes, more for talk than for action. Ultimately, what powers the prices of the overwhelming majority of stocks are such basics factors as earnings, new products and the ability of companies to expand to new markets.
-
The Stoic Retirement: Ancient Wisdom for Today's RealityA "Stoic retirement" doesn't mean depriving yourself. It's a character-based approach to life and aging that can bring calm and clarity.
-
My Teen Crashed His Car and Now Our Insurance Has Tripled. What Now?Dealing with the costly aftermath of a teen car accident is stressful. Here are your options for navigating it.
-
11 Outrageous Ways To Spend Money in RetirementWhether you have excess cash to spend or want to pretend, here’s a look at 11 ridiculous ways retirees can splurge.
-
If You'd Put $1,000 Into Coca-Cola Stock 20 Years Ago, Here's What You'd Have TodayEven with its reliable dividend growth and generous stock buybacks, Coca-Cola has underperformed the broad market in the long term.
-
If You Put $1,000 into Qualcomm Stock 20 Years Ago, Here's What You Would Have TodayQualcomm stock has been a big disappointment for truly long-term investors.
-
If You'd Put $1,000 Into Home Depot Stock 20 Years Ago, Here's What You'd Have TodayHome Depot stock has been a buy-and-hold banger for truly long-term investors.
-
What the Rich Know About Investing That You Don'tPeople like Warren Buffett become people like Warren Buffett by following basic rules and being disciplined. Here's how to accumulate real wealth.
-
If You'd Put $1,000 Into Bank of America Stock 20 Years Ago, Here's What You'd Have TodayBank of America stock has been a massive buy-and-hold bust.
-
If You'd Put $1,000 Into Oracle Stock 20 Years Ago, Here's What You'd Have TodayORCL Oracle stock has been an outstanding buy-and-hold bet for decades.
-
How to Invest for Rising Data Integrity RiskAmid a broad assault on venerable institutions, President Trump has targeted agencies responsible for data critical to markets. How should investors respond?
-
If You'd Put $1,000 Into Sherwin-Williams Stock 20 Years Ago, Here's What You'd Have TodaySherwin-Williams stock has clobbered the broader market by a wide margin for a long time.
