A Look at the Current Macro Environment

Posted on November 9, 2012 | Investor Update

When investing, it is always good to step back, take a deep breath and assess the current macro environment.

I’ll start off with the election, mainly because I feel that saying nothing about it would be to ignore the proverbial elephant in the room. The U.S. will have a divided government for at least two more years and politicians on both sides of the aisle are going to have to learn how to play nice in the sandbox. From an economic standpoint, avoiding the forthcoming fiscal cliff is the biggest short-term issue. But, a bipartisan agreement on debt reduction, taxes and spending could also go a long a way toward giving the markets confidence and potentially spurring stronger economic growth.

I’m not going to speculate on how this will play out. I do expect many investment newsletters and services to play off the fears of a worst-case scenario. My advice is to ignore them. When the facts are unclear—as they are now—following a strategy based on what Washington might or might not do can cause more harm to your portfolio than if you simply stayed diversified and looked long term.

There is also already chatter about which sectors and industries will do well or suffer as a result of the president’s re-election. Health care reform will continue to be rolled out. Growth in defense spending could slow, though members of both parties have a long history of trying to protect programs that benefit their constituents and campaign donors. President Obama won’t be friendly to the coal industry, which hurts railroads in turn, but global economic growth and the trend in natural gas prices are wildcards. Alternative energy should benefit, but this has been a risky sector to invest in. The Dodd-Frank Wall Street Reform Act will not be repealed, and its continuing implementation should be considered when looking at financial stocks. Keep in mind, however, that if the president wants to get legislation passed, he will have to make compromises on what gets done and carefully choose where to spend his political capital.

Read more »