This week saw good news and bad news on the economic/financial front. In good news, stocks started to rebound! But, in bad news, reports indicate that GDP dropped during Q2, meaning the U.S. has hit the common recession threshold of two consecutive quarters of GDP decline used by many economists. While some analysts point to a rising stock market and announce that we will be okay, many CEOs think that consumer spending will soon slow. So, is there any definitive news out there that can help investors moving forward?
Green Stocks Could Have Strong 2023
Bad economic news has been common in 2022, and that is bad news for the Democratic Party as we approach the midterm elections in November. One complaint among Democrats has been gridlock caused by its more conservative members in the Senate, namely Kyrsten Sinema of Arizona and Joe Manchin of West Virginia. However, Manchin has just signed on to a big spending bill that will invest in clean energy. If the bill passes in its current form, it could mean big boosts for green energy stocks next year.
But before you get too excited, Kyrsten Sinema hasn't signed on to the bill just yet.
Semiconductor Subsidy Bill Could Boost Tech
The climate and green energy bill is coming on the heels of a rare political victory for the Biden administration: a semiconductor subsidy bill known as the CHIPS and Science Act. Passed by the Senate and headed to the President, the bill will allocate over $50 billion in federal spending on chip-manufacturing plans. The news has sent domestic chip manufacturer stocks rising, including giants like Intel and Texas Instruments.
If domestic semiconductor chip manufacturing helps ease the current chip shortage, it could also buoy industries that use such chips heavily, such as the auto industry. But while the auto industry may be hampered by recessionary news, semiconductor producers themselves should do well over the next few years with strong federal backing. Over the past decade, there have been longstanding fears that reliance on foreign-made semiconductors, especially from China, constitute a national security risk.
But Pharma Stocks May Slow
While federal dollars may be flowing into green energy and domestic production of semiconductors next year, Big Pharma may see slimmer profits. Part of the big spending bill that will invest in green energy will also allow Medicare to negotiate prices with pharmaceutical companies. The Inflation Reduction Act would immediately put 10 drugs on the price-negotiation table, followed by 20 more in the near future. While this may ding pharma stocks temporarily, don't expect it to be a longstanding slump.
With America's aging population, expect demand for pharmaceuticals to remain strong over the next decade.
Midterms May Return Gridlock, Reduce Subsidies
The two political victories for Democrats may be isolated, as Republicans have been long predicted to win back majorities in both the House and Senate in November. However, recent events have made things more competitive. Now, some predict that Democrats may hold the Senate. Still, we will return to divided government if Republicans win either house of Congress. If this occurs, there likely won't be any big spending bills that invest in particular industries, such as green energy, during the next session of Congress (January 2023 - January 2025).
The economy may improve and boost most stocks, but political gridlock will mean fewer subsidies for specific corporations and industries. In that case, simply stick with your typical investment strategy that uses diversification.
I/we have no positions in any asset mentioned, but may initiate a position over the next 7 days