What Obama’s victory means for investors

By Ian Salisbury | Marketwatch

For months, stock market investors fretted over which of two competing visions for the economy voters would endorse. With President Obama’s reelection Tuesday night, they finally have their answer — along with a chance to identify some clear winners and losers among different companies and industries.

Though Democrats may crow that the country stands with them, the close race shows Americans are still very much divided. Nonetheless, market watchers and investing pros say the victory could have sweeping implications for companies across many sectors — from stodgy utilities firms to fast-growth technology stocks. Other industries, meanwhile, face as many questions as they did before the voting began. Will auto companies, bailed out during the financial crisis, continue to benefit in new ways from Washington’s favor? Or will new liberal priorities like promoting clean air begin to put a crimp in profits?  

Looming over everything, many analysts say, is still another giant unknown: How Washington expects to address the nation’s enormous budget deficit. As recently as Monday, Republican House Speaker John Boehner pledged not to give ground on a key point of contention: raising taxes on the wealthy. While Boehner’s party previously fended off that outcome, professional investors see victory giving Obama the upper hand. “Before, the Democrats blinked,” says Lord Abbett senior chief economist Milton Ezrati. “ That will not be the case this time .”

For many stock investors that won’t just mean higher income taxes. The president has also proposed letting Bush-era dividend tax cuts expire at the end of this year for high earners, effectively tripling the rates they pay. In addition to the direct hit for the wealthy, that move could put a drag on stocks that investors typically buy primarily for fat payouts, like utilities, which have already plunged nearly 5% in the past three months. “You’ll probably see more pessimism,” says J.P. Morgan Funds global market strategist Joseph Tanious.

Executives at energy and financial services companies have long warned that tighter regulations supported by the Obama administration will hinder profits. But the outlook for shareholders may not be so dire. While the coal industry has been one of the president’s vocal critics, the glut of cheap natural gas may have more to do with those companies’ recent travails than anything emanating out of Washington.

And while Wall Street honchos may have preferred to have a financial engineer like Mitt Romney in the White House, Obama’s reelection may at least clear away some of the long-standing uncertainty over the shape of new regulations like the Volcker Rule, which limits trading by many banks. Even the supposedly unfriendly Democrats seem unlikely to propose anything as radical as breaking up the largest Wall Street firms. “The very largest banks would likely do fine under either administration,” predicts Erik Oja, an analyst at S&P Capital IQ.

And professional investors see at least some industries cheering the Obama win. The tech sector, centered in blue-as-the-sky California, is lightly regulated to start with. Just this year, with bipartisan support, the technology lobby easily passed a law designed to spur investment through still-untested channels like crowd funding, while swiftly killing anti-piracy measures it opposed. Moreover, as the specter of sharply rising dividend tax rates weighs on utility stocks, growth-oriented tech stocks stand to benefit at their expense. “Tech stocks typically don’t pay dividends,” says BMO Private Bank chief investment officer Jack Ablin. “They plow cash back into their business.”

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