As I go to press on Thursday evening, the 2000 elections have not yet to be fully decided. In case you've been vacationing off this planet, the official outcome for the Presidency hinges upon a recount of the popular votes from the state of Florida, which initially appear to have awarded the state's block of electoral votes to George W. Bush.
The Congress appears to have gone marginally in favor of the Republican Party, and I thought a recap of a political panel discussion would be suitable regardless of whether a decision has been rendered prior to this writing being published.
In July, my firm Salomon Smith Barney explored the temperament of the American electorate. At that time, in a panel discussion hosted by Salomon Smith Barney, four political analysts from the American Enterprise Institute (AEI) observed that the race was a virtual dead heat and that our nation had entered into "one of the quietest election moods in history." Voters did not perceive significant differences between the policy proposals of the two candidates. Instead, they desired an option that would allow them to change the country's leadership without altering its course. Our panelists argued that due to "Clinton fatigue," Americans believed that the time for political change was imminent. But while a strong economy typically favors the incumbent party, voters in July were refusing to give the Clinton-Gore team credit for what they considered to be their own hard work. They believed that entrepreneuralism, hard work, technological innovation, and perhaps the Federal Reserve, deserved the accolades rather than the Vice President. Overall, the electorate's preoccupation with economic prosperity appeared to have given the nation's collective consciousness a good excuse for opting out of the political decision-making process altogether.
Going into election day, it was at best unclear what the electorate hoped the nation would win for itself in the Presidential contest. One of our July panelists, Bill Schneider, observed that voters continued to be "two-minded." They think they've never had it so good," he commented, and "they still want a fundamental change in leadership without a change in direction." Despite the promises of the Gore-Lieberman ticket, voters were not convinced that they should reward Gore for the economy. Instead, the apparent persistence of good times reinforced Americans' belief that their prosperity would continue indefinitely. On election day, according to Schneider, the American people were thinking to themselves: "Why should we reward Gore for the prosperity if it's not going to go away?"
With the likelihood of a Republican Congress, a Gore presidency would maintain the balance between the executive and legislative branches that has existed during the pat four years. Early on, some gridlock and contentiousness are possible, but I suggest that Gore's election rhetoric will moderate and that some accommodation may be made with Congress in order to move legislation forward. In the near future, I suspect that this outcome could be modestly favorable for the stock market. A Bush win together with a Republican Congress would proceed action on Bush's policies. Fiscal stimulus is possible under both Gore and Bush, but is much more likely to be achieved under Bush. Barring a downturn in the economy, any fiscal stimulus in 2001 could obviate the need for the Fed to lower short-term interest rates.
The stock market in terms of Dow Jones Industrial Average and S&P 500 saw its low in October and should recover into January, with some volatility potential during the December confessional for earnings. Any recovery should not be as exuberant as it was late last year or in early 2000 because the Fed is not supplying liquidity as generously as it was then because of Y2K.
While I continue to believe that the market will broaden beyond the dominance of tech and other big-cap growth stocks in recent years, it is likely that precedent for new money buys will be the stocks of companies having relatively visible and consistent earnings growth at a time when aggregate profits growth is slowing. In this regard, the health care sector, especially the drugs and HMOs, may gain more interest because they are already perceived as having consistent growth characteristics. With a Republican Congress, risks of price controls, etc. have lessened, and investors broadening portfolios beyond tech should continue to take note of health care. Similarly, financials remain attractive growth investments at a reasonable price., Under a Bush presidency, individuals may gain increased incentive to invest in equities through existing self-directed programs and possibly Social Security. Under a Gore presidency, the opportunity to put more funds in 401(k)s and IRAs may be put forward. Defense still looks good because procurement spending has begun to grow. This growth should be sustained no matter who is president. If Gore is elected, antitrust policy may remain a concern, but stringent environmental regulations that might increase business costs will probably not be passed by Congress.
No matter the outcome of the Presidential election, I remain constructive toward individual stock opportunities. For a listing of those companies, call me, Bill Creekbaum, CFP at 689-8729 or e-mail me at William.a.Creekbaum@rssmb.com.
William Creekbaum, MBA, CFP, a Carson City resident, is senior consulting group associate of Salomon Smith Barney, a financial services firm serving Northern Nevada.