Kerry, Bush, who's better for market?

PERSONAL FINANCE

There are several good economic reasons to support either presidential candidate

Election 2004: Investment Perspective

July 25, 2004|By Eileen Ambrose

IF WALL STREET had its way, experts say, President Bush would achieve a feat his father couldn't: a second term.

The Republican president is considered pro-business, favoring lower taxes and less regulation. Plus, Bush is the status quo, so there would presumably be fewer surprises for the next four years - and the stock market hates surprises.

"Wall Street is convinced that Bush will be re-elected," says Jonathan Golub, an equity strategist at J.P. Morgan Fleming Asset Management in New York.

But what if Wall Street is wrong? Would a President John Kerry be bad for investments?

Not if history is a guide: The stock market has often done well with a Democrat in the Oval Office.

Since 1901, Republican presidents have held office for nearly 56 years; Democrats for 48 years. In that time, the Dow Jones industrial average rose 386.7 percent under Republicans. But it rose 639.6 percent under Democrats, according to the Stock Trader's Almanac. And $10,000 invested would have grown to $81,300 under Republicans - and $279,705 under Democrats.

Some experts insist such numbers are meaningless. Other forces hold greater sway over the market than a president, and Democrats were just lucky to enter office when the business cycle was due for an upswing, they say.

But others say Republicans historically have been the party of low deficits and low inflation, a climate particularly favorable for bonds.

"Democrats have been more concerned with employment than with inflation, more interested in promoting growth. Growth is always good for stocks," said Tony Loviscek, an associate finance professor at Seton Hall University in New Jersey.

Because Democrats are less likely to propose tax breaks for corporations, "companies have to work much harder for their profits," said Walter Schubert, chair of the finance department at LaSalle University in Philadelphia. "When that happens, believe it or not, they do better."

The best environment for the market, many say, is a combination of Democrats and Republicans. In other words - gridlock.

"The best combination I found in looking at the different administrations is a Democratic president and Republican-controlled Congress," said Jeffrey Hirsch, publisher of the Stock Trader's Almanac in New Jersey.

"You get the best of both worlds," and what little legislation that gets passed must go through both parties, he said.

As party conventions approach - Democrats meet in Boston this week and Republicans gather in New York next month - investors will hear a lot of promises from the two camps. Some won't go anywhere, particularly if there's gridlock. But other platform proposals could turn into policies that affect investments.

Investors, of course, shouldn't change long-term strategies based on an election. Too many other factors could have as much or even more impact on portfolios, such as the economy, the war on terrorism, corporate earnings or Federal Reserve moves.

With that caveat, here are some likely winners and losers under a Bush and a Kerry presidency:

Defense

With the war in Iraq, and on terrorism, defense stocks will get a boost no matter who sits in the Oval Office, experts said. Still, Bush is viewed as more likely to exercise military might, making him slightly more bullish for the industry, they said.

"The administration has a stated policy of being aggressive in trying to address the problem of terrorism," said Mark Zandi, chief economist with Economy.com in Pennsylvania.

Kerry, a decorated Vietnam War veteran, isn't talking about pulling the plug on the war, but he does propose getting more countries to share the burden of the Iraq war, experts said.

Health care

Bush has been friendly to the pharmaceutical industry. Medicare's new prescription drug program, for instance, doesn't allow the government to negotiate for price cuts with drug companies. Bush would continue to oppose anything that smacks of price controls.

A Kerry administration, on the other hand, would press for concessions on prices in the Medicare drug program and permit lower-priced drugs to be re-imported from Canada, experts said.

Other health care companies would benefit under Kerry, some said. What Kerry doesn't spend on defense would be shifted to health care for lower-income families, said Sung Won Sohn, chief economist for Wells Fargo & Co. in Minneapolis.

"HMOs, hospitals and all these health care providers would benefit. There will be more dollars for them," he said.

Energy

Old-line energy companies that drill for oil and mine for coal would be treated more favorably under a Bush administration that is headed by two former oilmen, experts said. "The government is doing all it can to increase the likelihood that the traditional oil companies will be able to bolster production," Schubert said.

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