Reuters
Elections to Move Stocks in Short Term
Sunday October 31, 2:56 pm ET
By Anupama Chandrasekaran
NEW YORK (Reuters) - The outcome -- or lack of it -- of Tuesday's U.S. presidential contest will move stocks in the short term, but the election effect likely will wear off quickly as oil and interest rates take the baton, analysts said.
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The day after the Nov. 2 election, the Dow Jones industrial average (^DJI - News) is expected to rise 1 percent on average if Republican President Bush wins. The index could lose 1 percent if Democratic challenger Sen. John Kerry wears the crown, according to a study by independent economic consultant 4Cast Inc.
In the event of no clear winner, equities could slide 2 percent, the survey found.
But once the winner becomes clear, investors will focus on energy prices and interest rates since their rise could negatively impact corporate profits and consumer spending. The record budget deficit and the Iraq's first post-war election early next year will also loom large, strategists said.
"Geopolitical risks are going to be with us for a long time and it will ebb and flow with news from Iraq and the Middle East," said Leo Grohowski, chief investment officer for Deutsche Asset Management Americas.
"If we see energy at $60 to $70 a barrel, that will impede economic growth and if we get a jump in interest rates and a jump in inflation that will spook the consumer."
China will also have an impact, Grohowski said. The Chinese government's measures to cool demand through a recent interest-rate increase taken some of the heat off high oil and commodity prices, which has been good news for consumers of these commodities but bad news for mining and metal companies.
GOOD, BAD AND UGLY
A victory for Bush will likely move the market up because investors are familiar with him and his measures that offer greater incentives to U.S. businesses, analysts said.
"It is a long-standing view that the Republican Party is pro-business," said Alan Ruskin, research director 4Cast Inc. "Besides, the market likes continuity. Better the devil we know than the devil we don't."
Defense companies such as The Boeing Co. (NYSE:BA - News) and Lockheed Martin Corp. (NYSE:LMT - News) are expected to gain under a continuing Bush presidency, according to a Susquehanna International Group report. Big pharmaceutical companies like Pfizer Inc. (NYSE:PFE - News) and Merck & Co. Inc. (NYSE:MRK - News) will also get a boost from a Republican administration, which is opposed to imports of cheaper drugs. Such imports affect sales of big drug makers, shrinking their profits.
While it will be a negative for these companies if Kerry becomes president, businesses that could gain on the Massachusetts senator's victory include stem cell research companies such as StemCells Inc. (NYSE:STEM - News) and Geron Corp. (NasdaqNM:GERN - News), Susquehanna International's study said. Kerry's plan to remove Bush's current ban on stem cell research will help these companies.
Natural gas companies such as Burlington Resources Inc. (NYSE:BR - News) will also benefit from a Kerry win because of his proposal for tighter environmental restrictions, which will make eco-friendly energy resources like natural gas more attractive, the report said.
However, analysts said that despite a Democratic victory, if Republicans have control of the House of Representatives and the Senate, then it will be tougher for Kerry to implement his policies.
Still, the worst short-term scenario is a disputed election where it is not clear who the next president will be. Such a situation is expected to drag the markets lower.
"I would guess that we would see stock prices moving lower because it is an uncertainty no one wants to go through again," said Paul Cherney, chief market analyst at Standard & Poor's.
In 2000, when it was uncertain whether Democrat Vice President Al Gore or Bush had won the election, the Standard & Poor's index fell 7.33 percent over two months following Election Day, according to S&P data.
But the commotion in U.S. markets will subside in a few months, strategists said.
"Elections are not as important as some people think and they don't have as big an impact on markets because investors adapt," said Tobias Levkovich, equity strategist for U.S. institutional investors, Salomon Smith Barney.
Greetz
Elections to Move Stocks in Short Term
Sunday October 31, 2:56 pm ET
By Anupama Chandrasekaran
NEW YORK (Reuters) - The outcome -- or lack of it -- of Tuesday's U.S. presidential contest will move stocks in the short term, but the election effect likely will wear off quickly as oil and interest rates take the baton, analysts said.
ADVERTISEMENT
The day after the Nov. 2 election, the Dow Jones industrial average (^DJI - News) is expected to rise 1 percent on average if Republican President Bush wins. The index could lose 1 percent if Democratic challenger Sen. John Kerry wears the crown, according to a study by independent economic consultant 4Cast Inc.
In the event of no clear winner, equities could slide 2 percent, the survey found.
But once the winner becomes clear, investors will focus on energy prices and interest rates since their rise could negatively impact corporate profits and consumer spending. The record budget deficit and the Iraq's first post-war election early next year will also loom large, strategists said.
"Geopolitical risks are going to be with us for a long time and it will ebb and flow with news from Iraq and the Middle East," said Leo Grohowski, chief investment officer for Deutsche Asset Management Americas.
"If we see energy at $60 to $70 a barrel, that will impede economic growth and if we get a jump in interest rates and a jump in inflation that will spook the consumer."
China will also have an impact, Grohowski said. The Chinese government's measures to cool demand through a recent interest-rate increase taken some of the heat off high oil and commodity prices, which has been good news for consumers of these commodities but bad news for mining and metal companies.
GOOD, BAD AND UGLY
A victory for Bush will likely move the market up because investors are familiar with him and his measures that offer greater incentives to U.S. businesses, analysts said.
"It is a long-standing view that the Republican Party is pro-business," said Alan Ruskin, research director 4Cast Inc. "Besides, the market likes continuity. Better the devil we know than the devil we don't."
Defense companies such as The Boeing Co. (NYSE:BA - News) and Lockheed Martin Corp. (NYSE:LMT - News) are expected to gain under a continuing Bush presidency, according to a Susquehanna International Group report. Big pharmaceutical companies like Pfizer Inc. (NYSE:PFE - News) and Merck & Co. Inc. (NYSE:MRK - News) will also get a boost from a Republican administration, which is opposed to imports of cheaper drugs. Such imports affect sales of big drug makers, shrinking their profits.
While it will be a negative for these companies if Kerry becomes president, businesses that could gain on the Massachusetts senator's victory include stem cell research companies such as StemCells Inc. (NYSE:STEM - News) and Geron Corp. (NasdaqNM:GERN - News), Susquehanna International's study said. Kerry's plan to remove Bush's current ban on stem cell research will help these companies.
Natural gas companies such as Burlington Resources Inc. (NYSE:BR - News) will also benefit from a Kerry win because of his proposal for tighter environmental restrictions, which will make eco-friendly energy resources like natural gas more attractive, the report said.
However, analysts said that despite a Democratic victory, if Republicans have control of the House of Representatives and the Senate, then it will be tougher for Kerry to implement his policies.
Still, the worst short-term scenario is a disputed election where it is not clear who the next president will be. Such a situation is expected to drag the markets lower.
"I would guess that we would see stock prices moving lower because it is an uncertainty no one wants to go through again," said Paul Cherney, chief market analyst at Standard & Poor's.
In 2000, when it was uncertain whether Democrat Vice President Al Gore or Bush had won the election, the Standard & Poor's index fell 7.33 percent over two months following Election Day, according to S&P data.
But the commotion in U.S. markets will subside in a few months, strategists said.
"Elections are not as important as some people think and they don't have as big an impact on markets because investors adapt," said Tobias Levkovich, equity strategist for U.S. institutional investors, Salomon Smith Barney.
Greetz
