Although Barack Obama lost the Pennsylvania primary yesterday, he only lost by a few delegates and it is looking likely that he will be the Democratic nominee. It is hard to see how he would lose to McCain, especially given the unpopularity of the Iraq War.

With the likelihood of an Obama presidency getting higher, what does this mean for our investments? He is tougher to predict than the other two establishment candidates. He definitely has plans to expand the welfare state at home, but it is hard to say what he will do with foreign policy. It is unlikely there would be a dramatic change in foreign policy, but it is possible that the Iraq War could end sooner.

I don’t recommend having much in the way of stocks these days, but if you are going to own stocks, I would recommend energy and defense stocks. With that said, a withdrawal from Iraq would hurt some defense stocks, particularly in the short-term.

Although an Obama presidency may not live up to its promise, particularly in troop withdrawals, it is a possibility. Therefore, you should not be too heavy in defense stocks now. Of course, with a recession likely, you shouldn’t be too heavy in any stocks right now anyway.