T Nation

The Market

Some people were dismissive of the idea that the market preferred Bush over Kerry, even though there was a strong correlation between good news for Kerry causing the stock market to retreat.

Just wanted to note that this morning, as of 8:35 AM, the Dow futures are plus 124, NASDAQ futures are plus 26, and S&P futures are plus 14.8.


[Edited for Clarity]

and rising…


10:45 AM:

DJIA up 140.92
NASDAQ up 28.07
S&P 500 up 15.14

Stocks Soar in Early Hours
Market Rallies on Hope
For Election Conclusion

November 3, 2004 11:31 a.m.

The stock market surged Wednesday – the health-care and pharmaceutical industries got the biggest boost – as investors seemingly signaled their vote for four more years of a business-friendly administration.

Trading was heavy in the early hours as mostly dormant investors put their money to work. “It truly is a relief rally,” said Paul J. Nolte, director of investments at Hinsdale Associates. “The market was hoping for a Bush victory. ? The trick is to see if the market can hold it. If we fade in the last hour of trading, it calls into question the underlying economics.” Either candidate would take office “looking at an economy not on its feet,” he said.

The Dow Jones Industrial Average soared 143.19 points, or 1.4%, to 10178.92. The Standard & Poor’s 500-stock index surged 15.54, or 1.4%, to 1146.10. The technology-heavy Nasdaq Composite Index bounded up 28.22, or 1.4%, to 2013.01. Trading was frenetic, and the number of advancing stocks trounced decliners on the New York Stock Exchange and the Nasdaq Stock Market.

The gains, to be sure, were broad-based: Among Dow components, Altria Group added 2.4%, Boeing rose 3.2%, and Honeywell gained 2%. Small-capitalization stocks jumped, too, with the Russell 2000 index up 1.8%.

President Bush moved closer to winning re-election last night in a tight race against the Democratic challenger, Sen. John Kerry. A concession from Mr. Kerry appeared at hand, according to various news reports.

It’s well documented how much was at stake in this election – the potential for one or two Supreme Court vacancies, as well as naming the next chief of the Federal Reserve. Uncertainty over the election’s outcome has flustered Wall Street for months, and analysts have said a clear victory for either candidate would give stocks a shot in the arm that could last until the end of the year.

But for investors, there is a lot at stake, too, particularly in the health-care sector. And a Republican administration appears to be their preference.

Some investors feared “Kerry was going to heavily regulate” those industries, said Nancy Weaver, who covers the health-care sector for Stephens Inc. “There was concern over who would run centers for Medicare, Medicaid, the FDA – that there could be a slowdown in new drug approvals and reforms.”

A Bush administration likely will take a stand against importation of drugs from Canada. Although, he has clamped down on stem-cell research, certainly not a pro-biotechnology position, Mr. Nolte said. Part of the health-care rally could be simply because “these stocks have been beaten up this year,” he said.

The sector legged out some of the morning’s biggest gains: Eli Lilly soared 6.2%, Wyeth surged 5.1%, Amgen gained 5.6%, Pfizer was up 4.9%, Johnson & Johnson climbed 2.9%, Guidant netted 2.4%. Even Merck, which couldn’t catch a break at all recently, was up 1.8%. Aetna was up 4.6%.

The Treasury market had modest losses in morning trading today, as investors who sought the safety of U.S.-backed bonds unwound their positions on the prospect of a clear-cut win for Mr. Bush. The 10-year note lost close to 3/4 point, and the yield was up past 4.1%, while the 30-year bond lost more than a point. But that other investor safe house, gold, was up about $3.50 an ounce, signaling some investors aren’t that convinced the race is through.

Overseas, financial markets rallied. Stock markets in Asia made steady gains after a slow start as Mr. Bush appeared to consolidate his lead. Trading in Tokyo was closed for a holiday, but Hong Kong was up almost 1%, and South Korea gained 1.7%. The dollar rose against the yen.

In Europe, the gains were less impressive. Major markets in London, France and Germany were only slightly higher midday, and the euro crept slightly higher against the dollar, furthering its gains over the past few weeks.

Oil prices, which are marching to their own beat, stumbled again Wednesday. The December crude contract was down 13 cents at $49.49 a barrel on the New York Mercantile Exchange. Oil prices could fall even further if the government’s weekly petroleum-inventory report today shows more increases.

Later today, the U.S. Commerce Department is slated to report on September factory orders. Also, major auto makers report October sales results today.

In major U.S. market action Wednesday:

Stocks surged. On the Big Board, where 673.4 million shares traded, 2,424 stocks rose and 678 fell. On the Nasdaq Stock Market, where volume was 788 million shares, 2,134 stocks advanced and 680 declined.

Bonds were thumped. The 10-year Treasury note fell 21/32 point, or $6.5625 for each $1,000 invested. The yield rose to 4.14%. The 30-year bond was off 31/32 to yield 4.88%.

The dollar weakened. It traded at ?106.07, up from ?106.16, while the euro rose against the dollar to $1.2795 from $1.2726.

Write to Brian R. Fitzgerald at brian-r.fitzgerald@wsj.com

And the traders are still elated…


The Shareholder Election
By Daniel Clifton

Since the conclusion of the presidential election, total shareholder wealth has increased $430 billion, or roughly 3.8 percent in just seven days of trading. Total shareholder wealth is now at its highest level since April 19, 2001. It’s astonishing to see that in just seven trading days shareholder wealth resumed immediately above the levels not experienced since before March when Sen. John Kerry became the official Democratic nominee for president.

So why did this happen? First, the ending of election season has lifted the cloud of uncertainty that was weighing on equity markets. Second, the reelection of Bush keeps the investor tax cuts in place. Finally, the expansion of a pro-growth, pro-investor House and Senate paves the way for major tort reform, further tax cuts, Social Security reform, and expanded trade. These measures will boost shareholder value, both in the short and long term, and markets have responded accordingly.

Clearly, the uncertainty in the stock market caused by the election has been removed. Since Sen. John Kerry became the apparent Democratic nominee for president, uncertainty weighed heavily on equity markets. This uncertainty stopped the 11 month, $2.5 trillion rally in equity markets as soon as Kerry became the apparent Democratic nominee for president. As such, the end of the election alone has added roughly $150 billion to $200 billion of new shareholder wealth. With this cloud of uncertainty finally lifted, markets can resume back to the economic fundamentals.

Second, no major changes will be made to the capital gains and dividend tax cuts signed into law by President Bush in May 2003. Clearly, part of the uncertainty of the election was caused by the difference in the two candidates’ positions on capital gains and dividend taxes. Kerry’s proposal to raise the capital gains and dividend taxes would have an unquestionable negative effect on the markets, all else being equal.

In fact, lowering the capital gains tax is more than just a lower tax burden for investors every April 15th. Capital gains tax cuts boost the after tax return on equities, which in turn, increases stock prices. The capital gains tax was reduced in 1997 and 2003 and both times shareholder wealth increased by $2 trillion in the first 180 days following the tax cut. The possibility of repealing this tax cut was pricing into the market.

The same is true for Kerry’s proposal to repeal the very successful dividend tax cut. A recent Associated Press article by Rachel Beck erroneously concluded the dividend tax cut had no effect on the market or the economy. Tell that misstatement to the shareholders of the 379 companies on the S&P 500 that have raised their dividends since the tax cut. Also tell that to the shareholders of the 24 companies on the S&P 500 Index that have initiated first time dividends, which finally reversed the 25-year decline in dividend paying companies. New initiations and larger dividend increases explains why annualized personal dividend income has been hovering around 10 percent growth for the past eight months.

Bush’s victory coupled with an expansion of supporters of the capital gains and dividend tax cuts elected ensures these pro-growth, pro-investor tax cuts remain in place and increases the probability of further cuts in the rates over the next four years.

The third factor contributing to the rise in shareholder wealth is the increase of pro-growth Senators who will help move major shareholder legislation in the coming two years. Previously, Senate Democrats have been able to effectively block major legislative proposals by invoking a “filibuster” which requires 60 votes to pass legislation, despite the fact that more than 50 members of the Senate supported the measure. With an increase in pro-growth Senators the ability for filibusters to be invoked has diminished significantly.

As a result, expect substantial activity on tort reform, including Class Action reform, asbestos reform, and medical malpractice caps. Moreover, the elimination of the Death Tax now has 60 votes to clear a filibuster and action on this should take place sometime in 2006. Further movement will be made with bilateral trade agreements which will open new markets for American companies.

Finally, the door is now open for the Bush Administration to reform Social Security with personal retirement accounts. With each American holding an account, trillions of dollars will be moved from a low return government sector to high return private equity markets. The infusion of new capital into the markets will boost shareholder wealth across the board and more importantly, finally open investing opportunities for every working American. Social Security changes will also be coupled with Individual Retirement Account (IRA) and 401(k) expansions.

The proposals put forward by Bush stands in stark contrast to Kerry. The Democratic nominee put forward proposals to tax investors and lower their returns. He put forward proposals to erect trade barriers thus reducing the ability for American companies to expand in new markets. And he put forward class warfare rhetoric completely at odds with the thinking of investor voters, which represented nearly 65 percent of all voters in Tuesday’s elections.

As a result, the 2004 election confirmed the GOP dominance of the new investor class as the election marked the third national election of investor voters moving to the GOP column in large numbers. Bush won members of the self identified “investor class” by a whopping margin of 61-37 according to a post election poll commissioned by the American Shareholders Association (ASA). Voters who owned individually held stock, 401(k)'s, IRAs, and other investment vehicles all voted for Bush in majorities exceeding the national total. Conversely, Kerry and Bush were essentially tied among non-investors.

Remarkably, investors headed into Election Day with $1.3 trillion less in their portfolios than before Bush was elected and they still voted for him in sizeable majorities. Democrats thought this will benefit them. But they had no way to explain the decline was because of President Bush’s policies nor did they put forward a proposal that would boost shareholder value. Instead they engaged in their typical class warfare rhetoric, called for tax increases on investors, and put forward big government solutions to public policy problems.

The Democratic rhetoric completely ignores the thinking of the investor voters, who are traditionally independent people and do not view themselves as a disadvantaged group collectively. Moreover, they do not see the government solving all their problems. Rather, investors are forward thinking people who strive for better performance in the future.

President Bush put forward a pro-growth, pro-investor platform to ensure recent shareholder gains were kept intact and to make certain more gains in the future. Investors responded by casting their ballots for him and the markets responded accordingly.

Bush’s ownership society proposal will also bring more working Americans into the investing community. With more workers invested in the market, the possibility exists for more GOP voters in the future.

Clearly, the Democrats need to change their approach to public policy to meet the needs of the burgeoning investor class supermajority. If not, the Democratic Party will be relegated to minority status for a long time.

Daniel Clifton is executive director of the American Shareholders Association. He can be reached at dclifton@americanshareholders.com.

Yeah, wallstreet guys are always suspicious of a Dem coming in and screwing up the markets, but check these out:


here’s another


I believe the recent market response isn’t due to a Republican victory over a Democrat so much as it is Bush victory over Kerry…there is a difference. I believe it is incorrect to say that the market favors either Democrats or Republicans, despite what cnn and slate say. The market favors administrations that have policies that are better for business, be it republican or democrat.

The Kerry/Edwards ticket was not a business friendly ticket and the market responded favorably with their defeat.

In contrast, the Clinton Admin had a better grasp of global markets (NAFTA) and the market responded favorably under that administration.

Both people are democrats, both have different views on business and the markets would react differently under each person.

Certainly nobody would try and reelect the Carter Administration on the premise that democrats are better for the market than republicans.

If Bush can find a way to partially privatize social security, simplify the tax code, and cut back the deficit, the market will love him. Fail to do these things and the market won’t. It’s that simple.

What the market does over the long run only depends on what is happening in the economy, and those businesses. The markets may prefer one type of president over another, but that can only be seen right after an election, and that has to be taken with a grain of salt.

For example the recent market bump. Is it due to the president being reelected, or the surprising jump in jobs?

Also what the market does under an administration might have little to do with who is in charge. If an administration causes an effect in the market, how long before the action causes a reaction? Some things cause immediate responses while others can take years, if not decades.

Not only that but what is congress doing? If there is a president of one party, but the House and/or the Senate are another party, who is causing the effects? The Presidents proposals, and veto’s, or the other party getting laws passed without the president, or keeping the president from doing stupid stuff.

Then there is another thing people seem to forget. It might have absolutely nothing to do with the politicians whatsoever. Imagine if somebody mass produced an 18 wheeler that used only one third of the gas as a normal truck, yet had more power? And what if this truck was produced at a cheaper price then normal trucks?

This would have a dramatic effect on everything, since the price of transportation is included in everything. We would see an economic boom of immense proportions.

Now you inventors, get to work.

The president truthfully has little power over the economy, but still, the facts are there.

Under Democratic presidents, we have had better economies generally. Even under some of the most liberal, like Johnson, Truman and Roosevelt.

Now of course, there are many, many factors,such as war, econ cycle, etc that can account for that. But can it all be one big, strange coincidence…

[quote]TravisCS84 wrote:

Now of course, there are many, many factors,such as war, econ cycle, etc that can account for that. But can it all be one big, strange coincidence…[/quote]