Markets Split over Who Will Be Best President

Sunday Business (London, England), August 20, 2000 | Go to article overview

Markets Split over Who Will Be Best President


B

OND markets fear a George W Bush White House, while key sectors in the equity markets are nervous about a Gore administration, according to analysis of the political platforms being put to the American electorate in the presidential campaign.

The best result for Wall Street would be a divided government, with whichever party takes the White House being scrutinised and opposed by a hostile congress, they claim.

Wall Street has now studied the platforms of both the Republican and Democratic parties after their conventions and is finding fault and favour with both programmes.

The chief fear among bond markets is that Bush's proposed massive tax cuts would overstimulate the red-hot economy and force the Federal Reserve Board to drive up interest rates.

Defence, tobacco and pharmaceutical stocks are concerned that a Gore administration would introduce controls that could damage their profitability and drive down share prices.

But according to Jeremy Siegel, a professor of finance at Pennsylvania University, the reality of office does not always fit the rhetoric of a campaign.

Siegel has analysed the performance of the Standard & Poor's 500 index under different administrations since 1888. He found the index has posted returns, including dividends, of 10.9%, under Democratic presidents, compared with 9.3% for Republicans.

Since the end of the second world war, the Democrats' annual increase has risen to 15.5% compared with 11.6% for Republican presidents.

But Siegel said investors should be sceptical about using the statistics to assess the ability of the White House incumbent to manage the economy.

He said: 'We should be very, very hesitant about ascribing these returns to the policies of a president. There are an enormous number of factors that can influence the return.'

For example, a 32% return on the Standard & Poor's index in the final year of the Carter administration fails to reflect an equally high level of inflation that resulted in negligible returns for investors.

President Clinton last week asked the Democratic convention whether they were better off today than eight years ago a taunting reference to president Reagan's famous question about the Carter administration.

The performance during Clinton's term has ranged from a 1% dip during the first year of his administration through to a 38% rise in his third year.

But past performance is not a foolproof guide to the future and before the last confetti fell on the convention delegates, key assessments were being made about issues and strategies for their autumn campaigns. …

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