|
Election takes center stage
|
 |
November 5, 2000: 7:00 a.m. ET
Wall St. focuses on White House race; earnings, Fed also on the horizon
By Staff Writer John Chartier
|
NEW YORK (CNNfn) - The U.S. Presidential election will dominate financial markets this week as investors keep a close eye on how Wall Street reacts to the winning candidate.
The race is still too close to call, but many are worried about how the markets might react to the winner. Much of big business has put its faith in the Republican candidate George W. Bush, who has said he would pursue oil exploration and end the government's lawsuit against the tobacco industry.
Others worry that his opponent, Vice President Al Gore, will prolong high energy prices by curbing oil exploration and attacking the pharmaceutical industry. However, Gore is generally thought to have recognized the importance of the Internet long before most, and is therefore thought to be more supportive of technology growth. And Gore's tax cut plan costs less than that of the Texas Governor.
Then again, Wall Street favors a Bush win not necessarily because he would make the best president, but because his tax cut plan calls for less new spending, something that will not hurt corporate profits as much. The Street also favors Bush because he would allow senior citizens to invest a portion of their social security in the markets.
"There are certain areas (of the markets) that are obviously going to be dramatically affected with a Gore or a Bush victory," said Ron Hill, an equity strategist with Brown Brothers, Harriman on CNNfn's "Before Hours" program Friday. "I think tobacco, big cap pharmaceuticals are probably areas, but I think hospital stocks are going to do well either way. Defense stocks are already doing well either way, because I think spending is going to go up there. But keep in mind, lower interest rates are far more potent than whoever sits in the White House on a day-to-day basis."
The latest CNN, USA Today, Gallup Poll on Thursday showed Bush with a 4-point lead over Gore.
Other factors at work
Aside from the election, some bullish factors indicate that U.S. stocks have the potential for an end-of-year rally.
One of those factors is interest rates. After six rate hikes over the past year, the economy appears to be showing the signs of a slowdown.
 The Federal Open Market Committee, the policy-making arm of the Federal Reserve, left interest rates alone in September and is likely to do so again when it meets Nov. 15.
That's because energy prices remain at all-time highs, consumer spending is beginning to slow and credit card debt is on the rise.
Helping to bolster analysts' predictions about a stay on rates was the October jobs report from the government Friday.
The Labor Department said job growth slowed in October with 137,000 new jobs created, far fewer than the 190,000 predicted by analysts.
However, hourly wages increased, something that could spark inflation growth as firms raise prices to offset labor costs.
"I think [the] unemployment report number came in soft," said Peter Cardillo, director of research at Westfalia Investments "It was a little bit higher in the inflation side. There was a little bit of a concern with hourly wages, but I think [last Friday's] employment number sets the stage for the Fed to probably change their inflation risk assessment to neutral.
Another hint in that direction could come this Friday when the U.S. Labor Department issues its report on the Producer Price Index for October. The report measures inflation at the wholesale level and is one of the key inflationary factors the Federal Reserve will consider. Analysts polled by Briefing.com expect a 0.1 percent growth in the PPI, much lower than the 0.9 percent increase it posted in September.
"Everything's playing into the idea that the stress in the economy is beginning to ease. The Fed will take that bias away from inflation and make their risk assessment more balanced between inflation and growth," Brown Brothers' Hill said. "I think in all of the major indexes the bottoms have sort of been made here in October, and now we're ready to advance. I don't think it's a huge advance...trends are definitely in the investors' favor."
If the economic data remain favorable, combining it with greater market stability, particularly on the tech-laden Nasdaq, could help spark a rally in stocks.
A rally in the future?
The Nasdaq posted a more than 5 percent gain on Oct. 31, but for the month, the index was down 8.2 percent.
The Dow also gained early in the week coming to within 30 points of the 11,000 mark, which it hasn't seen since mid-September. It ended the month up 2.9 percent.
Stocks rose over the last five days. The Dow finished the week at 10,817.95, up 2.1 percent on the week. The Nasdaq ended at 3,451.55, a 5.3 percent gain on the week. And the S&P 500 index closed at 1,426.69, a 3.4 percent advance.
With most third-quarter earnings reports now out of the way, experts believe the Nasdaq is poised to build on its late-October gains to stage a real comeback.
But a few hurdles, especially in the volatile technolog sector still remain to be cleared. Cisco Systems (CSCO: Research, Estimates) and Dell Computer (DELL: Research, Estimates), two of the high-tech sector's biggest heavyweights are due to report their lates results this week. Cisco is expected to deliver its earnings report Monday, whileDell investor will have to wait till Thursday to see how the company did in the latest quarter.
Outside of the technology sector, Federated Department Stores (FD: Research, Estimates) reports its results Wednesday.
"Going forward, I think there's a good chance the Nasdaq sometime next week may pierce the resistance level of 3,550," Cardillo said. "If that's the case, it means a lot of investors are looking at the tech-wreck situation and money is beginning to flow there."
Cardillo said many tech and telecom stocks are undervalued, making them attractive to savvy investors. He is also encouraged by the fact that investors who took money out of the Nasdaq put them right back into the Dow, meaning the money is staying within the markets.
"Many (tech and telecom stocks) are undervalued. If we have a period of slow growth followed by an acceleration in the economy, I think we could see money flow back, and the one thing that's been very consistent in this market is the rotation factor," Cardillo said. "It tells everyone money is not leaving the stock market."
Cardillo said he expects the Dow to close the year either at its current level, or a bit higher, and believes the Nasdaq could finish the year at 4,000.
Perhaps a good example of that comeback is reflected in Qualcomm (QCOM: Research, Estimates). The mobile phone equipment maker's stock jumped more than $9 Friday after beating Wall Street's fourth-quarter earnings estimates by a penny after the bell Thursday. 
|
|
|
Track your stocks
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
