Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.wpost From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: Markets Viewing Clinton Victory With Hope, Fear; History Suggests There May Be Date: Sat, 31 Oct 92 08:47:18 EST Message-ID: <40.1992Oct31.084718@AmeriCast.com> Markets Viewing Clinton Victory With Hope, Fear; History Suggests There May Be Little Adverse Reaction Like a worried father whose daughter likes a handsome boy from a bad part of town, the nation's finan- cial markets are approaching the possibility of a Democratic president with a mixture of hope and dread. Wall Street is, at its heart, stubbornly Republican, and always cranky when the GOP seems about to be tossed out of the White House. The bond markets have been struggling for several weeks in what most analysts see as fearful anticipation of an old hobgob- lin - a spendthrift Democratic president and members of Congress who think inflation is one more nice way to help the poor. Investors will shy away from bonds if they think interest rates are going to climb in a Bill Clinton-heated economy, since that would reduce the value of the bonds they buy now. Instead, they're apt to sit on their hands, and beg their employers for early bonuses before the Democrat's promised taxes on the rich and their speculative income click in. Since the stock market moves on feelings as well as on facts, its preelection period also has been difficult and erratic, with un- certainties making investors reluctant to commit themselves to even the best ideas. But history and current analysis suggest little or no immediate adverse reaction to a victory by Clinton, and perhaps even some stimulating new buying. "The usual pattern is the market is weak before the election if the incumbent is expected to lose," said Robert J. Farrell, chief market analyst for Merrill Lynch & Co., "and then there is a com- pensating rally afterwards no matter who wins." If Clinton wins, it will be only the third time since World War II that a Democrat has succeeded a Republican. The Democratic victories in 1960, 1976 and possibly 1992 follow each other in precise 16-year intervals, and illustrate the financial markets' apparent ability to anticipate and adjust to Republican defeat. Stocks rose after John F. Kennedy's victory in 1960. The Dow Jones industrial average climbed from 597.63 the day before the election to 612.01 two days after. The same index suffered a wor- risome drop after Jimmy Carter's election in 1976, from 966.09 the day before to a low of 924.04 eight days after. Analysts at the time gave Kennedy credit for promising more de- fense spending and said his narrow victory over Richard M. Nixon denied him a mandate for any of the radical economic reforms Wall Street feared. The brief plunge after Carter's victory was blamed - by those who chose to see a political element - on Carter's perceived hos- tile attitude toward big business and his choice of a unabashed spender, Walter Mondale, as vice president. But by December 1976 the stock market had recovered, with the Dow hitting the 1000 mark on Dec. 28. In 1960 the market also remained healthy, with the Dow on Dec. 16 about 20 points above the Election Day level. Market history buffs such as Leslie M. Alperstein, managing director of County NatWest/Washington Analysis, argue that broader economic forces and trading rhythms with little connec- tion to presidential politics or policies explain many of the stock market shifts around election time and the year that fol- lows. The market did relatively well in 1961 and poorly in 1977, but little of that had to do with federal economic policy, analysts said. In the past few months, analysts said, dreary economic news and chaos in the currency markets probably had more impact on stock market slumps in late August and early October than Wall Street's distress over Clinton's strength in the polls. Walter Murphy, senior international market specialist at Merrill Lynch, predicts a relatively sluggish market under Clinton or Bush because of the lingering effects of the heavy buying in the 1980s. "Clinton can't win on this," Murphy said. "The best he can do is keep the status quo." Almost all analysts agree that investors are wary of Democratic politicians, fearing that they will be tempted to interfere in free markets and overheat the economy with federal spending. But in all price movements, up or down, there is opportunity. "They can separate out their personal feelings from how to make money on stocks," Alperstein said. If stocks plummeted under Clinton, an investor might say, "This guy is goofy, but he can't hurt us that much," Alperstein said. Alperstein's firm, for in- stance, is telling clients "that the bond market is overreacting" to the impending Democratic triumph, and has recommended stocks, such as Air & Water Technologies, that have indeed surged in an- ticipation of a new federal emphasis on pollution cleanup. Calm words from the new president also could help. "The bond market has declined in anticipation of a Clinton victory, but if they get the sense that things are not going to be that much upset, it is possible that the bond market would rally," said James E. Moltz, president of C.J. Lawrence Inc. "Investors may perceive a buying opportunity short-term if Clin- ton is elected," said Robert Ferri, spokesman for the National Association of Securities Dealers. He and other analysts also note that markets often feel a "January effect," a rush of fourth-quarter selling and buying to reduce tax liabilities. Stock averages have risen during the fourth quarter of every election year since 1932, Farrell said. Once they know with whom they are dealing, investors start buying stocks, but they still pine for the GOP and its still-visible, if tattered, free-market banner. Analysts saw energetic buying this week of economically sensi- tive stocks - those that might profit in a new consumer and con- struction boom brought on by a Clinton presidency. But there were other gains, particularly in bonds, after new poll results revived hopes of a Bush victory. Farrell said he was not optimistic about the market in 1993 but expects a brief market surge after the election if Clinton wins. In that same year-end period, he said, "If Bush were to win, I think you would have an even bigger rally."<02:32 10-31C9999----- Copyright 1992, The Washington Post. 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