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Markets See Bush and Gridlock as Winners

Drug, Tobacco, Energy Issues Rise Again; Tech Gets No Help


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.

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