Stocks to Rally if Election Turmoil Ends
By Emma-Kate Symons Nov 12 1:58pm ET
NEW YORK (Reuters) - Stocks are primed for a rally this week if an outright winner is declared in the deadlocked presidential election and the Federal Reserve keeps interest rates steady.
``I cannot envision in the wildest circumstances that this will be permitted to go on for months -- this is a situation likely to be resolved within a week,'' said Tom Madden, money manager with Federated Investors, with $125 billion under management. ``As soon as the market sees what the path to the resolution is we'll probably see a rally.''
But investors, who dislike any kind of uncertainty interfering with their markets, will remain on the sidelines if he bitter battle for the White House drags on.
The market also could get hit if investors detect any sign of a business slowdown at computer maker Hewlett-Packard (HWP.N), which reports quarterly earnings on Wednesday. The Nasdaq market succumbed to worries about slowing sales growth at high-tech leaders last week, closing at its lowest point for the year.
``It's a combination of two things: the uncertainty as far as the election is concerned ... and worries about earnings, particularly in the technology sector,'' Stanley Nabi, managing director at Credit Suisse Asset Management, said.
VOTE COUNTING QUAGMIRE
The state of Florida is in the process of recounting its ballots and the outcome is expected to determine if Republican George W. Bush or Democrat Al Gore will become the 43rd president.
Bush holds a razor-thin lead in Florida, according to unofficial results from a statewide recount of the vote.
The Gore campaign has asked for manual recounts in four Florida counties. But the Bush campaign sued on Saturday in an attempt to halt manual vote recounts in the countries and the suit is scheduled to be heard before a federal judge in Miami Monday at 9:30 a.m. (1430 GMT) -- at the same time the trading starts on the New York Stock Exchange.
Earlier Sunday, Florida's Palm Beach County ordered an extraordinary hand recount of all presidential ballots cast there, which is likely to bring significant numbers of additional votes to Gore if the judge does not stop it.
Gore campaign representative Warren Christopher said on Sunday he believed the dispute over the outcome of the U.S. presidential election in Florida would be resolved in ``a matter of days.''
Wednesday is going to be a pivotal day for Wall Street because the Federal Reserve's policy-setting arm, the Federal Open Market Committee (FOMC), will determine the central bank's course on interest rates. A slowing U.S. economy will keep the Fed from raising rates, and that should help stocks, analysts said.
TECH EARNINGS STILL A WORRY
That is if America's leading technology companies come through with better sales forecasts.
Technology stocks sank on Friday after the world's No. 2 computer maker Dell Computer Corp. (DELL.O) cut its sales growth target for next year to 20 percent, much lower than its historical sales performance. That made investors realize the growth years for the personal computer industry have passed.
The Nasdaq Composite Index (.IXIC) ended the week down 12.2 percent, at 3029 -- it's lowest close for the year. The Dow Jones industrial average (.DJI), which fell sharply on Thursday after the Democrats vowed to fight the election result, ended the week down 2.1 percent, at 10,603.
Dell's results may foreshadow deeper pricing cuts across the personal computer sector, slashing PC makers' earnings, analysts said.
``Essentially, Dell has priced aggressively, but its competitors have been slow to respond, hoping that things would stabilize if Dell hit its numbers,'' said Bear Stearns analyst Andrew Neff. ``However, it seems clear that Dell is unlikely to let up on pricing, which increases the odds of a price war.''
Later in the week, investor eyes will turn to leading computer maker Hewlett-Packard Co. (HWP.N). Shares of Hewlett-Packard tumbled nearly 9 percent on Friday after Dell forecast weakening sales growth.
Third-quarter earnings season concludes this week, when America's leading retail companies report quarterly profits. Wal-Mart Stores (WMT.N), Home Depot Inc. (HD.N), J.C. Penney Co. Inc. (JCP.N) and Target Corp. (TGT.N) are all due to release profit results on Tuesday.
November and December are traditionally strong for corporate America, and while investors do not anticipate a repeat of the fourth-quarter of 1999 when technology stocks soared to unprecedented highs, there is some optimism.
``The market itself wants to rally for seasonal reasons and the fundamentals with the exception of tech stocks are pretty good. So we will have these periods of rally but on balance until the election result is resolved we will have down days,'' said Robert Streed, portfolio manager with Northern Trust Co., with $350 billion under management.
Key economic data to be released this week include October retail sales, housing starts and the Consumer Price Index (CPI), an indicator of inflation.
POST-ELECTION MARKET RALLY STILL ON HOLD
Stocks that were set to rally last Wednesday on the anticipated victory of the Texas governor in the race for the White House, are once again preparing for an uptick if Bush is declared the nation's president-elect.
Bush's plans for tax cuts, less government regulation of prescription drug prices and health care, and a more relaxed approach to anti-trust probes amid the U.S. corporate merger boom should boost the stock market if his lead in Floridafor the equity market with tobacco, health care and drug companies and Microsoft all impacted adversely,'' said Joe Stocke, a money manager with StoneRidge Investment Partners LLC, who oversee $1 billion in assets in Malvern, Pa.
A more moderate rally is expected if Gore is declared the victor, market strategists and fund managers say. Pharmaceutical and tobacco stocks would almost certainly dip, given Gore's attacks on those industries throughout his campaign.
But a Gore win is expected to boost shares of mortgage market agencies like Fannie Mae (FNM.N) and Freddie Mac (FRE.N), according to market strategists and fund managers.
Gore is considered to favor retaining these enterprises in the current form. Other stocks expected to benefit if Gore wins the White House include some environmental related shares and some bank stocks, due to his ecological stance and perceived fiscal restraint.
Despite his popularity in business circles, there is apprehension that Bush's pledged massive tax cuts could send economic growth speeding out of control. That could force the Federal Reserve to hike interest rates again, further slow down the economy and hurt all stocks. |
