Markets See Bush and Gridlock as Winners
Equity investors cast their ballots Wednesday, and here’s how they voted: Yes on drug, tobacco and energy stocks under assumed-President George W. Bush; no on technology stocks, because neither candidate would appear able to fix what’s wrong with tech in the short run.
A rally in drug, tobacco and energy issues helped lift the Dow Jones industrials above the 11,000 mark early Wednesday, before selling in other sectors left the index down 45.12 points, or 0.4%, at 10,907.06.
But the broad market closed lower, perhaps reflecting the uncertainty over the election’s final outcome.
The tech sector, meanwhile, was hammered for another large loss: The Nasdaq composite index plunged 184.09 points, or 5.4%, to 3,231.70.
Semiconductor and Internet-related stocks led Nasdaq down, as the battered index saw its rally attempt of recent sessions cut short--a pattern becoming all too familiar to tech investors.
“There is still great concern about who the next president is going to be and how that is going to affect the economy,” said Barry Berman, managing director of equity trading at brokerage Robert W. Baird in Milwaukee. “Because of their valuations, tech stocks are the most susceptible to all that uncertainty.”
Others, however, said the tech sector’s course in the near term may be affected little by the election outcome, precisely because investors are focusing most intently on fears over individual stock valuations and near-term prospects for companies’ sales and earnings growth.
Since August, key firms in the semiconductor, computer, wireless and fiber-optics industries have warned of weaker-than-expected demand, sparking another steep sell-off in the shares.
“This has been a split market for a while now and tech stocks, which rolled over this spring, are on their own track,” said Ron Muhlenkamp, manager of the value-oriented Muhlenkamp Fund, based in Wexford, Pa. “Now that their momentum is down, it’s hard to say when they might recover.”
Overall, stock trading volume Wednesday was fairly muted, as losers topped winners by about 2 to 1 on Nasdaq and by 15 to 13 on the New York Stock Exchange.
The continued gains in drug, tobacco and energy stocks showed investors are assuming that Bush will win the White House, traders said.
Drug stocks have rallied in recent weeks as investors have bet on Bush, whose medical-care reform programs are viewed as far friendlier to drug companies than Vice President Al Gore’s proposals.
Among major drug issues, Merck surged $3.94 to a record high of $90.81, Johnson & Johnson climbed $1.31 to $93.44, Eli Lilly rallied $3.19 to $90.44 and Bristol-Myers Squibb advanced $1.25 to $62.31.
Tobacco stocks also rose Wednesday. Investors expect that a Bush administration would be far less hostile to the industry than a Gore administration. Philip Morris gained $1.44 to $36.69, RJR Reynolds added $1.31 to $36.31 and UST, a maker of chewing tobacco, surged $1.19 to $24.81.
Philip Morris also stoked interest in its stock after saying it’s on track to meet analysts’ average estimate of $3.71 a share for 2000 earnings.
Energy stocks were modestly higher Wednesday. Bush, a Texan with oil-industry roots, favors opening more Alaskan wilderness to oil and gas exploration.
Exxon Mobil rose $1.69 to $90.69 and oil-field services firm Schlumberger rose 88 cents to $80.
In the tech sector, Microsoft fluctuated in trading crosscurrents: The software giant rallied early on hopes that a Bush government might call off the antitrust dogs, then fell as the general tech sell-off intensified, losing $1.06 to $69.44.
While Bush is seen as bullish for key industries, some analysts say those stock sectors may have already priced in a GOP victory with their recent rallies.
What’s more, the idea of a significantly better environment for big business “is more fodder for the press than anything,” said Mark Sunderhuse, manager of the growth-oriented Berger New Generation fund in Denver. “It’s not like companies are suddenly going to say, ‘Let’s spew waste into the ocean so we can make widgets.’ ”
Still, analysts said the stock market could take some general comfort from the election results.
“What we do know is that we’re not going to end up with the scenario a consensus of investors least liked--a Democratic sweep of Congress and the White House,” said Mark Keller, strategist at brokerage A.G. Edwards & Sons in St. Louis. “For one thing, there was a lot of concern that such a result might have meant a much less friendly environment for international trade. Whatever happens now, I would expect pretty much the same healthy gridlock in Washington that we’ve had in recent years.”
Longer term, the bigger question for the market is whether the economy will in fact succeed in a “soft landing.” And that may depend more on the Federal Reserve--which meets next week--than the federal executive branch.
If the Fed begins trimming short-term interest rates in 2001, it could be a boon for small and mid-size stocks, which have historically performed well in a rate-cutting environment, Keller said. Because of their cheaper valuations, many smaller stocks outside the technology area would be the likeliest beneficiaries, he said.
In theory, lower rates should also help the tech sector. The question is how low those stocks may get before the Fed begins to cut rates.
Technology bellwethers led Nasdaq’s slide Wednesday.
Cisco Systems lost $4.63 to $52.13 after Morgan Stanley strategist Byron Wien dumped the stock from his “fresh money buy” list. Also, Sun Microsystems sank $11.13 to $100.31, Dell Computer slumped $2.25 to $30.31 and Intel sagged $3.50 to $42.69.
Other tech castoffs included Xilinx, down $8.38 to $58.31; Juniper Networks, off $22.50 to $188.19; and Broadcom, off $24.69 to $151.81. In the once-hot fiber-optics group, Corning lost $7.13 to $61.50.
“There will be pressure on [tech shares] from now until year-end because of tax-loss selling,” Muhlenkamp said. “People talk about how the mutual fund tax-selling season is already over, but a lot of these tech stocks are heavily owned by individuals,” who may yet decide to dump them to record tax losses.
Market Roundup: C6, C7
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Wall Street Places Its Bets
Drug and tobacco stocks rallied Wednesday, adding to their gains of recent weeks as the market has bet on a presidential victory for Gov. George W. Bush--who is perceived to be friendlier to both industries. But the tech-dominated Nasdaq composite index, weighed down by continued waves of selling since early September, has taken little comfort from a projected Bush win.
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Drug stocks surge ...
S&P; drug stock index, weekly closes and latest
Wednesday: 7,022.70
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... along with tobacco stocks ...
S&P; tobacco stock index, weekly closes and latest
Wednesday: 1,882.00
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... but Nasdaq sinks again.
Nasdaq composite index, weekly closes and latest
Wednesday: 3,231.70
Source: Bloomberg News, Los Angeles Times
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Tech’s Bloodletting Continues
Here’s a look at how key technology stocks fared in Wednesday’s pullback, and the stocks’ losses from their 52-week highs.
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Ticker 52-week Wed. Wed Drop from Stock symbol high close change 52-wk. high EToys ETYS $70.50 $2.56 -$0.78 -96% FreeMarkets FMKT 370.00 46.00 -6.94 -88 Conexant Sys. CNXT 132.50 26.19 -2.25 -80 Efficient Net. EFNT 186.81 41.31 -3.38 -78 EBay EBAY 127.50 51.63 -5.06 -60 PMC-Sierra PMCS 255.50 108.69 -19.19 -57 Dell Computer DELL 59.69 30.31 -2.25 -49 Oracle ORCL 46.44 24.81 -1.75 -47 Cisco Systems CSCO 82.00 52.13 -4.63 -36 EMC EMC 104.94 88.63 -8.94 -16
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Source: Reuters
