Investing in an Obama World

January 8, 2009

In just 12 days, Barack Obama will take the oath of office to become the 44th president of the United States. Like all administrations, the Obama presidency will have a major impact on the investing landscape.

Consider that Ronald Reagan's tax cuts (and Paul Volcker's Fed policies) helped usher in the'80s boom. Or that blue-state hi-tech companies skyrocketed during Bill Clinton's tenure. Since George W. Bush has taken office, many oil and defense stocks have been the big winners.

Investors who were able to connect the dots between each previous administration's economic priorities and the stock market have consistently earned huge profits. In this week's issue of What's Working on Wall Street Now, I want us to take a closer look at what the Obama administration holds for investors–and what investments you should make to benefit from the new president's policies. 

The Economic News Looks Grim

First, let's take a look at some the lousy economic news that will greet the new president.  Today we learned that major retailers have slashed their earnings estimates. Macy's (M) said it's going to shut down 11 stores, Sears (SHLD) reported same-store sales fell 7.3% and Nordstrom (JWN) said that it won't meet its previous earnings forecast.

It's not just retail–the tech sector is also feeling the pain. EMC (EMC) reported it's cutting 2,400 jobs, personal-computer giant Dell >(DELL) will eliminate 1,900 posts and Intel (INTC) pared back its fourth-quarter sales forecast for the second time.  

On the whole, news continues to look grim, and tomorrow's employment report will surely be ugly. The number of Americans collecting unemployment benefits now stands at a 26-year high. Consumer spending is still weak, and the housing market is in shambles.

And while the government has been doing its best to help, it can't just keep throwing money at problems. The Congressional Budget Office just said that the deficit for this year will be $1.2 trillion. Yikes! To put that number in context, as a percent of the overall economy, this will be the largest deficit since 1945 when the country was fully mobilized to fight World War II.