President's impact on stocks, bonds less than expected


November 18, 1993|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- Only a year ago, brokerage houses on Wall Street were feverishly touting their hot lists of "Clinton stocks" -- the sure-fire winners that couldn't help but rise under the country's first Democratic president in 12 years.

A year later, however, the term has all but vanished.

"My cynicism tells me it was all a fad. Brokers always need something to sell stocks," said Mark Hulbert, an Alexandria, Va.-based analyst of newsletters and their investment advice. "Clinton was their way to tout stocks."

To be sure, some of last year's predictions surrounding Clinton came true. Many drug company stocks fell, while "cyclical" companies -- those that do well when the economy turns upward -- gained in share price.

NatWest Securities, for example, put together a "Clinton portfolio" last year that had a value of $29.26 at last year's election and closed yesterday with a value of $43.25 -- for a 43 percent increase.

On the whole, however, the new president has not affected stocks and bonds as much as anticipated.

"Clinton has had some impact on the stock and bond market, but not like we thought when we talked about Clinton stocks," conceded Joe Kalish, a strategist with Ned Davis Research Inc. in Venice, Fla.

At the heart of the Clinton stock fad was a belief that President Clinton would sweep into office and radically change things within 100 days. Environmental regulations would help waste management companies, a new health plan would trash health care stocks and reckless government spending would send interest rates higher and choke the bond market rally.

What few foresaw, however, was that President Clinton would become bogged down in many domestic and foreign problems and, except for deficit reduction, have little time for major legislation.

"Everyone was focused on this '100 days' syndrome -- that he would accomplish a lot in a short time. But then came gays in the military, 'Nannygate,' whether Haitians could land here or not and a bunch of foreign problems that slowed down everything," said Les Alperstein of NatWest Washington Analysis.

Many of the recommendations stem from Wall Street's assumption Congress would approve President Clinton's economic stimulus package. Elected to deal with a weak economy, the president was supposed to fire up growth through make-work programs. Analysts, assuming the program would pass, recommended stocks in road-building companies, gravel makers and concrete manufacturers.

But once these proposals fell victim to budget cutting, many of these stocks did not do well. Bridge builder Kasler Holding Co., for example, was recommended by several brokerage firms as a sure-fire Clinton stock. It was bid up to $11 in the days after the election, but dropped over the past year to $7.

Environmental stocks have likewise not been boosted by Washington, despite Vice President Al Gore's interest in the environment. Fluor Corp., for example, was touted by firms such as Salomon Bros., but the California-based engineering firm has seen its stock price drop from $45 to $41 during the year after the election. Other big nonperformers include WMX Inc. (from $39 to $24.50) and Browning-Ferris Industries Inc. ($28 to $23).

Stock that performed well -- but not for the reasons outlined in many Wall Street research newsletters -- were economically sensitive stocks. An October 1992 report by Salomon Bros., for example, said President Clinton's stimulus program would would boost the stocks of automaker Chrysler Corp. and heavy equipment manufacturer Caterpillar Inc. Both companies' stocks have performed well, but because of the general economic upswing, not government programs.

At the other end of the spectrum are defense stocks and bond prices, which outperformed analysts' gloomy predictions.

Defense stocks were projected to take a beating because of Mr. Clinton was supposed to slash the defense budget. But defense companies have not been hit as hard as expected.

In addition, many defense companies have cut staff and bought out competitors, allowing their bottom line to remain respectable and their stock price to stay firm. Martin Marietta Inc., for example, has seen its stock rise from $28 on election day to $44.50 a year later. Bonds have also differently from Wall Street's forecasts. Merrill Lynch Inc., for example, was one of several investment houses to warn last year that yields on the 30-year Treasury bond could rise to nearly 8 percent on market fears that a Clinton presidency would overheat the economy and reignite inflation.

In fact, the bond market reacted exactly the opposite, and the long bond's yield dropped to a record low of 5.75 percent in October.

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