Sector most sensitive to politics
I have read in a few posts on this forum that sectors like O&G, A&D, and Industrials generally are among those most politically driven, or at least the most sensitive to political developments. I was wondering if anyone who works in these sectors (or sectors that you believe are also very sensitive to politics) could elaborate on why they believe this to be the case. I get the general idea of why politics might, for example, influence the price of Lockheed stock (e.g. they are awarded a contract over Boeing, etc.), but can you think of specific instances where politics mattered in your ER analysis?
FIG, particularly banks. I covered large cap banks back in ER and regulation changes are CONSTANTLY on watch. When Trump got elected president, we had to model out a bunch of scenarios and write notes as to how certain regulation changes could impact revenue/expense/tax streams based on what regulations could be laxed/changed/loosened. Tons of white papers and documents to go through to see implications, especially because large banks have their hand in so many divisions (Bank of America is like analyzing 6 heavily regulated businesses in one stock).
We often had conference calls with our political analyst in Washington to get a sense on where everyone's head was at in terms of certain regulations and the surrounding politics behind them.
Thank you for the input! Are most sectors that are affected by political developments primarily concerned with regulations for the purposes of ER? For example, how would an O&G equity researcher incorporate the possible impact of sanctions? And in the A&D space, do you happen to know if the concerns are primarily regulatory, or more so geopolitical? If the latter, how would one address such concerns in a report?
You basically model out scenarios with adjusted assumptions that reflect the company's performance given a certain regulatory change happens. For example, say there's a possibility of lending requirements being more stringent. My analyst would look at the baseline forecasted loan growth for a stock and adjust the rate down based on his/her knowledge of what kind of loans that particular bank is known for. Part of it is putting your finger to the air and the other is using personal experience and perspective.
For an O&G company and sanctions, the impact is dependent upon how the country being sanctioned is related to that company. If the O&G company isn't involved in that region then you'd talk to the oil analyst and ask how that impacts prices going forward and you can forecast a benefit to P&L. If the company has operations there, then you have to forecast decreased production capabilities and possible ceasing of operations there which may include closing costs.
For A&D, my guess is that it's mainly geopolitical and a function of defense budgets as well as how much an analyst thinks an A&D company will be allocated of that budget based on what they think the military needs to produce in equipment.
There's different levels of detail as to how it can be forecasted and there isn't a right/wrong way. Too much detail can prove to be stupid since forecasts can never capture random variables and too little can lack consideration of certain important drivers.
Wow, thanks for the thorough reply! While one could theorize the connections between these sectors and national politics, regulatory changes, and geopolitics, it's really interesting to learn about the more practical aspect of how these kinds of things are dealt with and incorporated into equity research. Thanks again!
Media. More audience engagement and ad revenue.
Healthcare is an obvious one.
It would be the Defense sector
Does the senate control most of the MIC funding, IE if Republicans have the senate budgets should continue to raise?
I'm not sure what you mean by MIC funding, but if you are referring to the appropriations process more generally (and if MIC stands for something along the lines of "military contractor"), the answer is that Republican control of the Senate shouldn't necessary mean higher defense spending per se since both houses of Congress participate in the budget/appropriations process. While a full description would take a more lengthy answer (e.g. talking about 302b allocation, etc.), federal spending will probably rise generally, and spending on defense will probably also rise, but I'd say that has more to do with the President than Congress. E.g. Trump has expressed his intention to withdraw from the intermediate-range nuclear forces (INF) treaty, has expressed desires to modernize various branches of the military and create a "space force," etc. So allocations to defense will probably continue to rise, with military contractors getting a large piece, probably especially technology, cyber security, and logistic-oriented military contractors since those seem to be the areas in which there is a push for modernization of US forces (with residual growth for cloud-providers and other tech companies whose technologies will have important military applications). In any case, to end my rambling, if your question was about potential increases in defense spending, then yes, it will probably rise over time, but probably more due to the President than to Congress (IMHO).
FIG and potentially industrials depending on how we're defining politics...if we're talking more global macro politics/policy, look no further than https://www.cnbc.com/2018/09/26/tariffs-cost-ford-1-billion-in-profit-a…</a">this.
The SEX DUNGEON industry
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