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Wall Street And the White House: Honeymoon Ahead?
NEW YORK (Reuters) - If your stomach's in a knot over what
effect Tuesday's presidential election will have on your stock
portfolio, relax.
November through April are traditionally the best six
months to invest in stocks, said Yale Hirsch, the market
historian who's also editor of the "Stock Trader's Almanac."
So this month, he said, could start a honeymoon for Wall
Street and the White House, no matter who wins.
That's probably not what some people want to hear. After
all, Gov. George W. Bush of Texas and Vice President Al Gore,
the Republican and the Democratic candidates, respectively,
have spent millions of dollars and countless hours
crisscrossing the country to persuade people that it DOES
matter who wins.
"It probably doesn't matter which one wins as far as the
economy goes," Hirsch told Reuters in an interview.
"A tax cut, done properly, increases the economy," Hirsch
said. "Paying off the debt lowers interest rates and that helps
the economy. It's a 'win-win' situation."
A honeymoon for the new president and the stock market is
inevitable, in his opinion, because "this is America. We give
everybody a chance."
Not so fast, said Larry Wachtel, senior vice president and
market analyst at Prudential Securities.
"A honeymoon? I say no," Wachtel said, sounding like a
father who's about to read his spendthrift child the riot act.
"I don't believe so. It depends on the fundamentals. Sure,
there'll be a honeymoon, if the fundamentals permit it.
"The election is interesting," Wachtel added. "But show me
the money. Show me the earnings."
Earnings, in a word, haven't been good.
"From the second to the third to the fourth quarters, we're
seeing diminishing earnings," Wachtel said. "That's the most
troubling factor."
Wachtel pointed out that Wall Street's ideal scenario is an
election that divides the spoils, with one party capturing the
White House and the other party in control of Congress.
This election, said Robert Stovall, market strategist at
Prudential, "is the most important in 20 years, and it's too
close to call."
The Dow Jones industrial average, which Stovall said has "a
better record than most" as an election forecaster, predicts
victory for the incumbent party -- if the index rises from the
end of July through the end of October. But the Dow's October
swan dive and its erratic rebound since then "may be bad news
for Al Gore," Stovall told investors in a report.
Sitting vice presidents rarely get elected, says the "Stock
Trader's Almanac."
IS THE BEAR DEAD?
The stock market bottomed in October, Hirsch believes.
"We saw a rash of bad financial statements," Hirsch said.
That's one of the classic signs of a bottom -- an indicator
that usually lags a market top by about six months.
The Dow average (.DJI) topped out in January and the Nasdaq
(.IXIC) in March this year.
"We've just experienced one of the worst bear markets in
Nasdaq, off 40 percent, and we've also had a bear market in the
Dow since its January high," he said.
Unless the United States gets engulfed in war in the Middle
East, he sees the stage set for the stock market to recover.
On Oct. 18, the Dow Jones industrial average closed below
10,000 for the first time since mid-March, and the Nasdaq
Composite Index fell to 3,026, an intraday low for the year.
"Once again, October has been the bear killer," Hirsch
said. "Even though it has a dark Halloween image, that's the
time to buy stocks."
Prudential's Wachtel is more cautious.
"I concede there was a bear market in technology," he says.
"We've had the September-October shakeout. Certain areas are
slowing down, like fiber-optics, like cell phones, like PCs."
INTEREST RATES WILL FALL
Hirsch believes "interest rates will be coming down. Mr.
Greenspan will see to that" because the economy is slowing.
An interest-rate cut could come as soon as the Nov. 15
meeting of the Federal Open Market Committee, Hirsch said.
The fed funds rate, the rate banks charge each other for
overnight loans, is 6.50 percent, after six rate increases from
June 1999 through May this year.
Wachtel of Prudential sees the possibility of a rate cut
down the road.
"With the economy cooling, there's no longer a threat of
rates rising. We are cooling on the manufacturing side, but not
on the consumer side. We see rising energy prices.
"If the economy continues to cool, sometime in early 2001,
the Fed will begin to cut again," Wachtel predicted.
BEST TIME TO BUY STOCKS
"Since 1950, an excellent strategy has been to invest in
the market between Nov. 1 and April 30 each year and then
switch into fixed-income securities for the other six months,"
Hirsch wrote in the "Stock Trader's Almanac." (On the Web, see
stocktradersalmanac.com).
A compounding investment of $10,000 in the Standard &
Poor's 500 Index from November through April, starting Nov. 1,
1950, and ending April 30, 2000, yielded a whopping $363,353
gain over almost 50 years, Hirsch told Reuters. From May
through October over that same period, the investment returned
a "puny" $11,574 gain.
But Prudential's Wachtel doesn't buy it.
"We are entering a favorable seasonal period -- November,
December, January -- because there are the flows of funds at
the end of the year," he said.
No one should think there's a guarantee of good returns
from stock investments made this month through January or
through April, for that matter, Wachtel said.
"Just because there is that bias, there's nothing automatic
about the stock market," Wachtel warned. "Just because Yale
Hirsch says so in his book, I can't count on it."
A SHOPPING LIST
Technology, biotechs and energy stocks are the best place
to be now, Hirsch said. The pounding that technology stocks
have taken this fall presents an ideal buying opportunity.
"Intel (INTC.O), the leader, has been beaten down," he
said. "When else are you going to have such a great opportunity
to buy something that's been beaten down?"
Fuel-cell and alternative energy plays, like Ballard Power
Systems (BLDP.O), make sense in an era of high oil prices and
stricter emission standards, Hirsch said.
Stovall of Prudential sees defense, energy and aerospace
stocks doing well if Bush wins on Tuesday. His laissez-faire
approach to regulation probably would help Microsoft, too. In
contrast, Gore as president isn't likely to let Microsoft Corp.
(MSFT.O) off the hook, after the Justice Department's case.
Environmental and waste-management stocks, education and
housing shares -- think Sallie Mae, Fannie Mae, Freddie Mac --
would thrive under a Gore administration, Stovall said.
Prudential's Wachtel said "we're still recommending
selective stocks. We're still a buyer of techs that sell into
telecoms, like Vitesse Semiconductor (VTSS.O) and PMCS --
PMC-Sierra (PMCS.O), as opposed to Intel and other techs that
sell into PCs, which we see as less desirable.
"Some of the techs that sell into cell phones, we like," he
added, naming Texas Instruments (TXN.N) as one.
In other sectors, "we think Home Depot (HD.N) is oversold,"
Wachtel said. "We're a buyer of Target (TGT.N). We like the oil
services group, Baker Hughes Inc. (BHI.N), media stocks Viacom
(VIA.N) and Disney (DIS.N), also Boeing (BA.N) and GE (GE.N)."
Hirsch sees the Dow average "somewhere above 11,000" and
the S&P 500 (.SPX) above its Dec. 31, 1999, close of 1,469.25
at year end. But the Nasdaq composite "could fall short" of its
1999 close of 4,069.31, he added.
Wachtel of Prudential believes the Dow could finish 2000
"somewhere in the 11,500 to 12,000 range" and the Nasdaq
composite could revisit "3,800 to 4,000" by the close of
business on Dec. 29, the last trading day of the year.
For the week, the Dow Jones industrial average was up
227.33 points at 10,817.95. The Nasdaq Composite Index was up
173.22 at 3,451.58. The Standard & Poor's 500 Index was up
47.11 at 1,426.69. |
