Investors keep eyes on presidential elections

by Peter Frost

As the nation awaits the results of the tightly contested race for the presidency, investors are keeping an especially close eye on the outcome.
Many economists agree the aftermath of the election will create more certainty in the stock market, but say a victory for either Texas Gov. George W. Bush or Vice President Al Gore will have no long-term effect on the economy.
With the U.S. Senate and the U.S. House of Representatives being relatively equal in representation, Vernon Eidman, head of the University’s applied economics department, said the presidential election will have little bearing on the well-being of the economy.
However, the policies of the party that will come into power will have a definite effect on several industry sectors of the stock market.
“I think there will be some initial reaction in the markets, but because the election is so close and congress is so close, things will sort of level out in the long run,” Eidman said.
The president, whether Democrat or Republican, will have limited control of legislation if both the Senate and the House are balanced, he said.
The immediate effect will most likely impact the stock market in seven key industry sectors — the oil industry, defense contractors, technology, entertainment and media, pharmaceuticals, automobiles and tobacco.
Hence, investors are keeping close watch on companies in those industries.
Because of several policy differences, the industries are expected to either strengthen or weaken, depending on who is elected.
The tobacco industry, for example, would likely perform better if Bush is in office, because of his plan to end the Justice Department lawsuit charging tobacco companies with racketeering and misleading advertisements.
Gore, however, said he would continue support of the lawsuit and pursue further restrictions and FDA regulations of nicotine.
The presidential election also has strong bearing on pharmaceutical company stocks.
Gore, in favor of strict price control on prescription drugs, would offer a new prescription-drug benefit under the government’s Medicare plan.
“This would not help drug companies at all,” said Josh Arnold, an independent financial advisor and the host of KSTP-AM’s weekly “Money Talk” program.
“By placing price restrictions on drugs, this cuts directly into these companies’ profits, leading to devaluation on the stock market,” he said.
Bush, however, has said he supports the prescription drug benefit, but takes a more free-market approach involving private insurers.
On economic policy, one of Gore’s first priorities is to pay down the national debt. Bank and insurance company stocks should benefit from this because they own government bonds.
“If the government is committed to buying back bonds, the valuation of these bonds increases and interest rates will go down, putting banks at a huge financial advantage,” Arnold said.
Instead of paying off debt, Bush is committed to cutting taxes.
Bush’s desire to lower taxes is aimed at providing more disposable income for American consumers. In theory, consumer spending and investing in the markets will increase, two characteristics of a healthy, flourishing economy.
“The thought of the Democratic Party is, ‘We have a program that will solve your problems,’ while the Republican Party ‘wants the people to solve their problems,'” Arnold said.
Regardless, most analysts see the economy heading in the right direction no matter who is elected.
The various industries expected to be affected by a new president won’t find out until late Thursday whether that effect will be positive or negative.

Peter Frost covers business and can be reached at [email protected]. He can also be reached at (612)-627-4070 x3215