10/25/2012 04:44 EDT | Updated 12/25/2012 05:12 EST

Will the outcome of the U.S. presidential election move stock markets?

TORONTO - Canadians obviously can't cast a ballot for Romney or Obama on November 6, but investors may want to pay attention on election night because the outcome could affect their investment portfolios.

For months, Republican candidate Mitt Romney and Democrat incumbent Barack Obama have sparred over their divergent approaches to issues including deficit-reduction, health care, energy, taxation and financial regulations.

Experts say a victory by either candidate won't overshadow some of the global economy's bigger problems causing market volatility — the European debt situation, the U.S. fiscal cliff and slowing growth in China.

Still, the way the world's biggest economy deals with its domestic issues has implications for Canada's economy and business sector, as well the performance of stocks in Canadian portfolios.

Paul Taylor, chief investment officer at BMO Harris private banking, says businesses, both in the U.S. and Canada, are currently sitting on cash — and are not inclined to raise dividends for investors — partially due to uncertainty about the direction of the U.S. economy.

The market, he added, is pricing in an Obama win and that is expected to mean delays and gridlock on a solution to the fiscal cliff, a point reached if slated tax increases and spending cuts go ahead, especially if Republicans gain control of both houses of congress.

Thus, an Obama victory would leave the market flat or down, while a win for Romney, who's painted himself as the "pro-business" candidate, would be greeted positively, he says.

"I think the consensus is a narrow victory by the president and then a house that is divided ... any change to that, if, in fact, Romney actually wins, that would be new for the markets," he says.

"The perception anyway, is that a Republican administration is better for the business community."

But Sadiq Adatia, chief investment officer at Sun Life Global Investments doesn't think either candidate winning would have much effect on the stock markets. The bigger story, he says, is getting the fiscal cliff solved, which he believes either candidate will eventually be able to do.

"People are realizing that no matter what anybody does right now it's still going to be a bleak picture for the next few years and nothing's going to resolve anything on that."

Though those persistent macroeconomic issues continue to cast a pall over markets, the incoming president's policies will affect the performance of specific sectors of the economy.

Here's a list of the sectors that could be most affected.


Canadian energy stocks would get a boost under a Romney victory, Adatia and Taylor say, because of his pledge to create an energy independent North America, under which he has specifically mentioned support for Canada's oilsands.

And while it's likely either candidate would go ahead with TransCanada's (TSX:TRP) controversial Keystone XL expansion, the biggest difference is Romney's outright support, while Obama is "dragging his feet on it," Adatia said.

A Romney victory could mean an immediate bounce in TransCanada's stock, as well as producers in the oilsands and related services.

Taylor believes that not only would energy see a boost under a Romney win, but a sell-off under an Obama victory.

"Certainly a Romney win would be good for the Canadian oilsands providers because he has made it clear that they will be North American energy independent," he said.

"A huge part of that relates to openly endorsing the importation of Alberta oilsands oil."

Health Care:

Romney and his Republican party have staunchly opposed Obama's controversial Affordable Care Act, which includes subsidized health insurance. Under a Romney win, there is a chance the law could be repealed.

That would create uncertainty in the healthcare sector and therefore a Romney win would be a negative for health-care stocks, Taylor and Adatia say.

On the other hand, those stocks would benefit under an Obama win, Adatia says.

"Health-care stocks both in Canada and the U.S., both would benefit off that, but if he loses I think you'd see a negative situation there."

Taylor adds that whether health-care business like the law or not, at least they would have a clear direction under an Obama second term.

"Whereas if we repeal Obamacare that just stokes the whole health-care debate and I think the health-care sector wouldn't like that — just too many questions."


Part of Obama's plan to reduce the deficit includes cuts to military spending, whereas Romney has said he would increase spending on the military.

Therefore a Romney win would be best for stocks in the defence sector, such as contractors, suppliers and equipment makers, Taylor and Adatia say.

"There would be specific areas where they have targeted spending that will be the beneficiaries (under Romney)," Taylor says.

"If you're a provider to that big machine which is the U.S. military that would be relatively more positive than a democratic victory."


Obama imposed stricter regulations on Wall Street and U.S. banks in the wake of the financial meltdown of 2008. But Romney, who founded Bain Capital, has indicated he'd like to see fewer regulations for the financial sector and also advocates cutting corporate taxes.

The sector would likely do well under either president as both will likely improve the housing sector, Adatia says. Bad mortgages were one of the main reasons for the financial collapse.

However, financial stocks would likely get a bigger boost under Romney, he adds.

"It helps from the standpoint of getting these banks to go through different revenue streams because it would be less onerous on them to do it, there'd be less regulation on them so they might be able to go back to business as it was beforehand."

In the end, analysts may make bets on probable Republican versus Democrat scenarios, but Fisher Investments notes that while conventional thinking assumes the stock markets would rally if conservative Romney wins, and tank under an Obama victory, history suggests otherwise.

"One valuable lesson we’ve learned over the years, and also in our extensive research of past market history, is that the seemingly probable scenarios rarely happen as expected – especially with respect to politics and the stock market."