This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Embrace Equities Amid Election, QE2 Changes

BOSTON ( TheStreet) -- A Republican influx into the House and Senate would probably be cheered by investors hoping for political gridlock or a change in economic policy.

Stricter regulations in response to the subprime-mortgage crisis and the ensuing recession have painted Democratic leadership as anti-business. Further, ObamaCare and the threat of looming tax increases has aided a Republican resurgence. The GOP needs 39 seats to reclaim the House and oust Nancy Pelosi as speaker. Some analysts predict a 60-seat swing in Republicans' favor.

Jobs and the federal deficit are voters' top concerns, polls show. And fear of harsher regulations has made businesses hesitant to hire. Moody's (MCO) data indicate that S&P 500 companies are sitting on $1 trillion of cash. Liquidity-hoarding and cost-cutting have pushed profit margins near all-time highs and goosed the stock market despite the employment slump. So far, 259 of the 321 S&P 500 companies that have reported third-quarter earnings exceeded consensus targets. Just 194 beat revenue forecasts -- sales growth appears to be tapering. Without stronger demand, companies won't invest in new jobs.

A self-reinforcing cycle has created a so-called jobless recovery. The unemployment rate is stuck at 9.6% and is predicted to hover at that level unless additional economic stimulus is provided. Assuming the now-consensus scenario of Republican wins and a stalemate in Congress, the likely form of stimulus is an extension of the Bush tax cuts and a second round of quantitative easing, expected to be announced by Federal Reserve Chairman Ben Bernanke tomorrow.

Speculation has it that the Obama administration is now considering extending tax cuts for all Americans, but those for the wealthy would be temporary, either for one or two years. Some analysts argue that quantitative easing, a process through which the Fed purchases Treasuries to boost asset prices, including those of stocks, has already been priced into markets. The dollar has depreciated sharply in recent weeks and the S&P 500 posted an impressive 13% gain for September and October. Still, some see further upside in equities.

Barton Biggs, former strategist at Morgan Stanley (MS) and current manager of hedge fund Traxis Partners, last week predicted a 10% stock rally upon announcement of QE2.

Bond-fund manager Bill Gross of Pimco sees QE2 as the death knell for a 30-year bull market in fixed-income securities. Gross, though not predicting a sell-off in Treasuries, argues that yields have little room to decline without causing negative real returns for long-term holders. Thus, the case for stocks is difficult to refute. When the world's foremost fixed-income authority calls a top in the bond market, it's time for individual investors to embrace equities.
1 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
CSCO $27.96 0.00%
INTC $31.11 0.00%
MSFT $49.90 0.00%
AAPL $95.03 0.21%
FB $116.73 0.00%


Chart of I:DJI
DOW 17,830.76 -210.79 -1.17%
S&P 500 2,075.81 -19.34 -0.92%
NASDAQ 4,805.2910 -57.85 -1.19%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs