If John McCain manages to pull off a surprise victory next week, Martin says biotech stocks will get a boost from fewer restrictions on drug prices.

This from Smart Profits Report:

One week from today, America will elect its next president.

What was a hotly contested race a few weeks ago now appears to be swinging in favor of Democratic candidate Barack Obama, but that doesn’t necessarily mean Election Night will be much less dramatic.

The question is: How will this major event and changing of the White House guard affects the economy, the stock market – and more importantly, individual investors? Many investors are already sick to death of the drama that the stock market has tossed at them this year, so aren’t likely to welcome much more.

Let’s take a look…

The Four-Year Presidential Cycle And Its Impact On The Stock Market

Despite the current rhetoric and hype surrounding the candidates’ respective policies, measures enacted typically don’t make any serious dent on the economy for a year or two after they’re passed into law.

Yale Hirsch, one of the co-authors behind the respected Stock Trader’s Almanac has studied the effect that presidential election cycles have on the stock market. And his research indicates that the market generally follows a pattern, regardless of whether a Republican or Democrat administration wins the White House.

According to the theory, here are the stock market returns between 1948 and 2007…

• The first post-election year is typically the worst performer in the presidential cycle, with the S&P 500 posting a 7.3% return
• The second year sees the highest record of bear market bottoms, with the S&P recording a 10.1% advance.
• In the third year of the presidency, the market picks up dramatically, notching up a 22.9% gain.
• The final year of a presidency sees more uncertainty creep into the market, with a 12.1% gain. That’s still above average, though.

While the past four years haven’t followed the above trend, this is an entirely different time, with the U.S. experiencing an epic financial crisis right on top of the presidential election.

And the market could easily fall back into this pattern… because right on schedule, economists foresee recession conditions over the next two years.

The Post-Election Healthcare Environment

As an investor, if you’re looking for a map of how the next cycle will play out – and who could be affected the most – a lot depends on whether the winning candidate can live up to his promises. But that can depend largely on who controls Congress and the importance of the sector.

For example, areas like healthcare, energy, education, and defense are always going to be pretty heavily funded, no matter who is running the show.

With regard to healthcare, this election is once again filled with candidates’ promises of how they’re going to create affordable healthcare for all Americans – a task that always seems to be easier said than done.

According to the International Strategy and Investment (ISI) research firm, a McCain administration would probably represent good news for firms like Pfizer (NYSE:PFE), Genzyme Corp. (NASDAQ: GENZ) and Genentech (NYSE:DNA), since they’d be less likely to face restrictions on drug prices.

In addition, McCain may not opt for as much of an overhaul of healthcare as Obama, so managed care firms could see an advantage. Obama would seek changes to Medicare and crack down on medical malpractice areas, so look for managed care and insurance companies respectively to undergo Obama’s favorite word… change.

Since both men have espoused unique alternatives to our current system, the healthcare sector will see changes regardless though.

Look To Renewable Energy Firms… No Matter Who Wins

As for energy – one of the hottest spots on the market – both Obama and McCain support crucial efforts to explore alternative energy in order to relieve some of America’s dependence on getting energy from volatile nations.

Earlier this year, McCain even went so far as to offer a $300 million reward for anybody who could design a “battery package that has the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars.” And both men attended former president Bill Clinton’s National Clean Energy Summit in Las Vegas, Nevada, back in August.

McCain has also thrown his weight behind greater offshore drilling and “clean coal” production, right alongside ethanol production from corn. Obama has expressed more interest in other forms of alternative energy, such as wind and solar power – two areas that could receive more subsidies and mandates under his administration.

In this respect, ISI says solar leader like First Solar (NASDAQ:FSLR), wind turbine manufacturer Vestas Wind Systems (CPH:VWS) and waste-into-energy firms like Covanta Holding (NYSE:CVA) could see benefits.

The Battle For Headlines: Economy And Market vs. Obama And McCain

The bottom line here is that while both candidates are busy championing their ideas and policy proposals to the country and certain sectors and stocks will benefit more than others from a regime change, the overall stock market isn’t going to be as affected as some people might think.

According to John Merrill, chief investment officer of Tanglewood Wealth Management, the market isn’t really paying that much attention to the candidates, no matter how much both like to speak out. “Today, the market and the economy are shaping events much more than the presidential election.”

Source: The Presidential Election Cycle… What The Obama-McCain Battle Means For Stocks

This from The Daily Reckoning Australia:

Around noon yesterday here at the Old Hat Factory, a little daemon whispered in your editor’s ear, “The bottom is in for the year of the ASX.”

“Huh?” We looked around to try and spot the little green devil. He’s been in our ear before. But he was nowhere to be found. We could still hear his voice.

“Think about you fool. It is now safe to be dogmatically bearish on the front page of the newspapers. The hedge funds have been forced to liquidate. The mob followed on the fund industry’s heels, sold everything, and headed for the hills. The hills are full! Can’t you see what this means?”

“No.”

“The selling has exhausted itself for the year you moron! Roubini recommends a $400 million stimulus package. It’s a sign. The liquidation of the long commodities/short dollar and yen trades has got to be nearly over. The moves in the currency markets have been massive. It can’t go on. And if it does…well if it does then this is the second Great Depression and you’ll have other things to worry about.”

But what if you’re wrong?

“Then I’m wrong. If you’re going to be in the equity markets at all for the next year, you should own the world’s best businesses. You’re not going to see them this cheap again for awhile. If you don’t want to own theses businesses, why bother being in the market at all?”

God may not whisper in everyone’s ear. But we find daemons more than willing to have a chat, usually when our judgement is most in doubt. Still, we couldn’t help following through the thoughts of our little green devil to their logical conclusion. And in his own way, he makes perfect sense.

Bob Prechter and the Elliott Wave theorists (if we’re not mistaken) believe that ’social mood’ is what determines the direction of the stock market. And the market then leads the economy. But what leads the social mood?

Well, that’s a tough one. At the Border’s on Chapel Street this weekend, we noticed that Bill Bonner and Lila Rajiva’s book, Mobs, Messiahs, and Markets had moved up to number seven on the hardback best seller list. People are trying to understand why investors act like a flock of birds or a school of fish, all seeming to move in the same direction at once, without cause or explanation.

People are wacky. The great mistake of market analysts (and most socialists) is to assume that people are rational and make economic decisions after calm, rational calculation. This is a figment of the rational imagination.

People often take leave of their senses. And these days, it’s hard to say just why some people are selling and no one is buying. As we’ve said here, we think it’s the massive unwinding in leverage that’s forcing stocks to be sold. There are simply not enough buyers to sop up all the selling (at least not until last night in New York, when some of that cash got back in the game).

It doesn’t help that you have a slowing global economy and a credit crunch. When you combine all that, the social mood turns decidedly sour. The beer goes flat. The smoke, rather than being a pleasant cloud in the lungs and making everyone look sophisticated and cool, just burns the eyes.

What our little daemon told us yesterday, we think, is that the social mood couldn’t possibly get any more sour. “Consumer confidence drops to record low,” reports Bloomberg this morning. There was dust and tumbleweeds blowing through the markets this week. It was fast becoming a barren wasteland.

But yesterday in New York, the first intrepid investors popped their head out from above their fallout shelters. Squinting in the sun, they found that perfectly healthy world-class businesses were lying around in the street for the taking. They were taken. The Dow was up double digits.

Don’t get us wrong. This still feels like the beginning of the 50% rally the Dow experienced in late 1929 and early 1930. But a man can take only so much depression in one quarter.

It is not hard to see a simultaneous round of global interest rate cuts, a massive stimulus package in the U.S., and the election of Obama in the States (did somebody say Messiahs?) as just the things to turn the social mood around. And that’s what makes for a rally.

Source: The Root of All Financial Evil