What If
Portfolios Differ
For Bush and Gore
by Andrew Leckey
Well,
we'll still have Alan Greenspan.
Whether George W. Bush
or Al Gore is elected to the presidency in November, the much
admired Federal Reserve chairman will remain resolutely in place.
Sworn in for another term this year, Greenspan will continue
to guide the nation's interest rates and economy for at least
another year or two, something Wall Street is elated about.
Now, about the White
House: The investment community "buzz" still has Bush
a favorite to win, though capable of blowing his lead if he proves
disappointing in debates with Gore.
Whoever wins the presidential
race, however, the government figures to be fairly centrist,
the budget surplus will continue to grow, and the fundamentals
for both the economy and stock market look rather good. The only
investment concerns seem to be whether drug stocks and managed
care stocks might swoon under a Gore presidency that's tough
on health care pricing, or whether Bush might overstimulate the
economy with oversized tax cuts and damage the bond market.
Providing a backdrop
are the strong possibilities that the Senate will retain a Republican
majority and the Democrats may eke out a narrow majority in the
House, though it's too early to predict either with certainty.
The president/Senate/House combination chosen on Election Day
will make the difference between gridlock with a dividend government,
one party having the power to steamroll policies through, or
something between those two.
Wall Street almost
always cheers for Washington gridlock because it means less government
interference.
"It's important
for an investor to think about what the conventional wisdom will
be if the election goes left or right," advised Charles
Gabriel Jr., Washington policy analyst with Prudential Securities.
"It's helpful to have a `cheat sheet' so you can better
anticipate where public opinion will go."
One can formulate "what
if" portfolios for both candidates.
A Bush win victory
portfolio features defense stocks such as General Dynamics,
Lockheed Martin and Northrop Grumman, according
to Gabriel. It also includes energy firms such as BP Amoco
and El Paso Energy; tobacco firms such as Philip Morris;
health-care firms such as Wellpoint Health Networks and
Merck & Co.; and Microsoft, which might benefit
from a new Justice Department pushing for a peaceful resolution.
Meanwhile, Bush's emphasis
on market-based Social Security reform could be a boon to asset
gathering firms such as T. Rowe Price Associates, Goldman
Sachs Group and Alliance Capital Management.
A Gore victory portfolio
includes Sun Microsystems and America Online, which
would benefit if the Microsoft suit drags on, Gabriel believes.
Also prospering under Gore would be environmental firms such
as Roy F. Weston and Sevenson Environmental; agricultural
firms Archer Daniels Midland and Deere & Co.;
and satellite communications firms Hughes and Loral
Space & Communications.
"If it looks by midfall that Bush is going to win, it would be a psychological plus for several regulated sectors, especially the drug industry but also utilities, energy, tobacco and defense," predicted Greg Valliere, chief strategist for the Schwab Washington Research Group. "Meanwhile, the Federal Reserve could play a definite role in the election outcome, for if it stays on the sidelines on interest rates, that would help both the stock market and Gore."
One major political battleground is retirement policy, where the Republicans are putting more emphasis on the private sector solving Social Security woes. Gore is expected to play hardball to get across his message that the entire system might be jeopardized by Bush's suggestion that Social Security taxes could be reduced by giving individual taxpayer the ability to take some of the money to invest in a private account.
Meanwhile, Bush must convince older Americans that their benefits are untouchable, while showing younger folks the attractiveness of injecting stock investment into the retirement equation.
"Another important difference is the fact that tax cuts proposed by the Republicans are larger than the tax cuts proposed by Democrats," noted Hugh Johnson, chief investment officer of First Albany Corp. in Albany, N.Y. "In the market, there's a general concern about tax cuts on the belief that you shouldn't put more money in pockets of consumers because fiscal stimulus isn't a good idea when the economy's growing too fast."
Wall Street isn't overly excited about either candidate because they look so much alike and are struggling for control of the center, Johnson believes. He doesn't expect much market fireworks for the remainder of this year, with the economy more important than the election.
Johnson predicts a year-end Dow Jones industrial average of 11000, a Standard & Poor's 500 of 1500 and a Nasdaq Composite of 4300.
Stock-picking will be the best way to succeed. In technology, Johnson recommends Cisco Systems, Sun Microsytems and IBM; in financials Bank of New York, Citigroup and American International Group; in health care Bristol-Myers Squibb, Johnson & Johnson, and Pfizer; and in consumer cyclicals Harley-Davidson, Home Depot and Alcoa.
