sanity to prevail

  1. 729 Posts.
    ………but one day one can expect sanity to prevail.
    There will be plenty trying to call the next top and when.


    Bush win seen driving US stocks into gains for '04
    Wed Nov 3, 2004 03:06 PM ET
    By Brendan Intindola
    NEW YORK, Nov 3 (Reuters) - President Bush's Wall Street victory party should last to the end of 2004, lifting a moribund U.S. stock market into the black, strategists say.

    But despite the significant benefit of diminished political uncertainty, they say, investors must remain wary of inflation, the U.S. budget deficit, high oil prices and Iraqi turmoil.

    U.S. stocks soared on Wednesday with a triple Election Day wish come true: a win for the Republican incumbent George W. Bush, the end of a divisive campaign without disruptive attacks, and no drawn-out legal brawl to decide the presidency, which occurred in 2000.

    After the immediate euphoria fades, one of the major reasons that bulls should dominate the landscape are anticipated tax cuts, including efforts to make permanent the lowered tax rates for dividends and capital gains. Republicans have also been eager to take on inheritance taxes.

    "It relieves a tremendous cloud that's been hanging over the market," said Gordon Fowler, chief investment officer of Glenmede Trust Co. in Philadelphia, which has $14 billion in assets under management.

    "The other thing is this relieves some uncertainty on the tax structure for stocks. Markets have done well under both Democratic and Republican, but they clearly like a lower capital gains rate and dividend tax rate," he added.

    In May 2003, Congress reduced the top U.S. tax rate on dividends to 15 percent from 35 percent through 2008, as part of a $350 billion tax cut. The 2003 tax cut on capital gains also is in effect through 2008.

    Challenger Sen. John Kerry waited until late Wednesday morning to throw in the towel, although world financial markets figured hours earlier that Bush prevailed, and stocks globally have been surging all day.

    While Kerry had been waiting for the vote tally in Ohio, it was clear that Bush attracted a majority of the popular vote, the first candidate to do since his father, former President George Bush, in 1988.

    NOT FADE AWAY

    "I do not think it (the rally) will fade away. I see a strong fourth quarter driving the market to post-2002 record highs," said Marc Pado, chief equities strategist at Cantor Fitzgerald & Co. "For the year, we should end up in 5 to 9 percent, and we are entering the last two months with a flat reading."

    Since 1950, the average rate of return for the Standard & Poor's 500 in a presidential election year is about 9 percent, Pado added. He said the S&P 500 should rise to between 1,200 and 1,250 in the near term.

    On Election Day, the S&P 500 was up 1.7 percent for the year to date, while the Dow Jones industrial average was down 4 percent and the Nasdaq Composite Index was off 0.9 percent.

    By midday on Wednesday, the Nasdaq Composite Index had already moved into positive ground for 2004 on the rally sparked by Bush's win. The Nasdaq rose more than 1 percent by noon, pushing it up 0.2 percent since the year began.

    Further strength in equities, Pado said, will be drawn from an increase in corporate capital spending as well as consumers' attitudes, which should improve now that the election is over.

    "There are (capital spending) tax benefits expiring in 2004, and a lot of companies will take advantage of that," he said. "Also, having removed the uncertainty of the election and the terrorist threat to disrupt the election, this will get consumer spending going again."

    Subodh Kumar, stock strategist at CIBC World Markets, informed clients early on Wednesday that, "After a lackluster 2004 into October, once the presidential winner is settled, the base is set for a market rally."

    As for risks, Kumar wrote in a his report that "continued strength in oil prices and sharp dollar weakness would threaten earnings and valuation, but we see these risks as receding."

    David Dreman, chairman of money manager Dreman Value Management in Jersey City, N.J., said the post-election rally might extend for a week or two, but then investors will have to examine some domestic and international difficulties.

    He also said that Iraq remains a problem, and he wondered if Iraqi elections could be pulled off in January as planned.

    "A number of factors worry me. With oil prices being up where they are, over or close to $50 a barrel for over a month now, I think we've got some inflation built in here that we can't really contain," he said.

    On Wednesday, crude oil for December delivery jumped $1.26 to settle at $50.88 a barrel on the New York Mercantile Exchange. (Additional reporting by Herb Lash)



 
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