Which 2012 Campaign Issues Really Matter To Wall Street Investors?

Among the most important: the divergence in Democratic and Republican policies on energy -- separated by the massive gulf in official understanding of climate change between the two political entities -- which could result in very different winners and losers among publicly traded U.S. companies the day after Election Day. The difference between Obama and Romney's expected focus on industry-specific regulation is also a big one for investors, as are more obscure policy discussions regarding issues like broadband spectrum reform, whose denouement could affect a wide host of companies.

The S&P Capital IQ report, which bends over backward in an attempt to be nonpartisan, does find there are some thing investors have in common with regular voters. Like most voters "they believe the stock market and economy perform better under a Republican president" and that "a Romney victory would likely instill more confidence for business and the economy in general."

And like most voters, the S&P report goes on to say, they are wrong on this point "as the U.S. economy, stock prices, and corporate profits recorded greater growth during Democratic administrations" since 1900.

"While one might say that Democrats are the 'tax and spend' party, the important part of that equation may be the 'spend.' When you spend, that usually improves the economy and increases corporate earnings."

Indeed, the analysts noted that since "U.S. institutional investors tend to have strong Republican views and the market could temporarily rally as the perception might be that the party will be business friendly and anti-taxes at the federal level [...] the rally might be short-lived."

Here's a look at what appear to be some of the most important policy dichotomies for investors, according to Standard and Poor's:

Energy and environmental policy

The general view on the Street is that a Democratic administration will continue to push for rules that limit carbon emissions as "most Democrats continue to express concerns about the environmental ramifications caused by CO2 emissions." Republicans, by contrast, care little about such things and "embrace the idea of increasing domestic drilling."

That policy dichotomy sets up a whole host of industries to either rally or slump following the November elections. Renewable energy industry companies, particularly in the solar field, are hoping for an Obama win. Natural gas companies are too, betting environmental concerns about fracking will be trumped by larger arguments about how burning gas is better than oil where global warming is concerned.

Pipeline companies, their engineering consultants and oil drillers, on the other hand, are hoping the Republican plan to "expand drilling, limit the EPA and end the clean energy loan program" is voted into office. Coal companies are clearly on the GOP's side.

Less obviously, companies in other sectors might be rooting for Democrats or Republicans on similar issues, S&P analysts said. Iron ore miners and steel producers are pulling for the Republicans on the "assumption that EPA rules [under Obama] could ultimately make steel production more expensive." For that very reason, the makers of steel's closest competitors, aluminum, are looking for an Obama sweep.

Not everyone has up-or-down voting preferences. One of the most interestingly split industries in terms of their policy choice between Obama and Romney is that of railroad transportation, according to S&P. While Obama's efforts against the coal industry and coal-fired plants affect a transport that makes up 25 percent of railroad revenues, promotion of the natural gas industry could make up for that. Trains are also major carriers of ethanol and its by-products, and it is not clear how the ethanol gasoline blending mandate would survive in a Romney White House. Still, S&P puts this industry in the Romney camp.

General regulatory focus

The idea that "a Republican administration has traditionally been pro-deregulation" permeates several explanations of industries leaning one way or the other. It's not that either Romney or Obama have made specific policy proposals in this regard but that the general market sense is that a GOP White House would be more open to letting large businesses do as they will.

In this sense, large telecommunication and utility companies are hoping to see Romney inaugurated in 2013, under the assumption his attorney-general would be less likely to block large deals with anti-trust concerns. For similar reasons food producers are hoping for a Republican victory, which would "lower the likelihood of new governmental controls on food industry advertising, labeling and ingredients."

On more specific policy grounds, S&P believes that even if Hollywood is solidly in the Democratic camp, large media companies are secretly hoping for Romney to win, as that could "lead to a potential easing of media ownership rules." The fact the Obama administration buckled to political pressure in withdrawing its support of web traffic regulation aimed at stopping online piracy also weighs in here.

Surprisingly in the Romney column, given the fact the candidate has railed against the bailout that saved the Detroit auto manufacturers, S&P sees automakers as Republican-supporters at heart, since Romney is more likely to take a "hands-off approach" to fuel-efficiency rules implementation.

Housing policy

Homebuilders and real estate investment trusts are getting behind Obama's promises of "a push for mortgage principal reduction, and an increase in programs to help the housing market." In a nutshell, the market believes a Romney victory would result in "greater foreclosures occurring over the near term," which would tank the housing recovery and these companies' share price.

REITs would also benefit from specific tax provisions that "level the playing field" once the Bush tax cuts are allowed to expire, as Obama has said he would do.

Tax and economic policy

While both the Democrats and Republicans sell themselves as champions of the middle class, investors are working under the assumption a Romney victory would overwhelmingly benefit the rich, something luxury retailers would very much like. Opposing that view, credit card companies would rather see four more years of Obama as these firms "need the vast majority of the population to have growing incomes and jobs" to thrive.

Trucking companies and those in the IT sector would benefit from a Republican win in the fall, according to S&P, based on that party's attitude against organized labor, for increased tax credits on research, and possibly in favor of a profits repatriation tax holiday.

Health care reform

The health care sector is nearly at all levels solidly behind Obama, given the fact the President's signature health care reform legislation is setting the tone for the future of that massive industry.

Pharmaceutical companies, drug distributors, hospitals, health insurers and drug retailers are all on Obama's camp, S&P explains, if only because they are investing in infrastructure to comply with the new law that would be worthless if the reform is repealed. The one sub-industry group loudly clamoring for Romney: medical device makers, who are none too happy about the 2.3 percent excise tax their products face under the new law.

Dodd-Frank

"Mid-size and smaller banks would likely cheer a Romney victory," S&P analysts write, noting the market "would expect much less pressure on the banking industry from a Romney administration."

However, in a telling statement that shows just who runs the puppet show of American politics, S&P notes that "the very largest U.S. banks would likely do just fine under either administration [...] since they have no fear of failing or being broken up."

Defense spending

"Republicans are typically much more in favor of a greater effort in national security." S&P sees this mainly helping defense contractors, including defense-focused IT firms.

Spectrum reform

A topic that gets nearly no traction on the campaign trail is all the buzz in Wall Street, as it is widely believed subsidies that have helped pushed for broadband expansion into rural corners "are less likely under a Republican administration" as would be efforts to move "spectrum from broadcasters to telecom carriers." Net neutrality principles are "another conceivable target for a potential Romney repeal." All that puts broadband service providers and medium-sized telecoms in the Obama side.