The Election's Over -- Now Who Won?

The stock market is on hold, awaiting the recount in Florida to determine who the 43rd U.S. president will be. Right now, it appears Texas Gov. George W. Bush will be the next president, but the Senate looks deadlocked, 50-50, and the Republicans hold a narrow majority in the House of Representatives.

But the legislative branch is destined for gridlock for at least two more years, and some of Gov. Bush's more ambitious plans involving partial privatization of Social Security and large tax cuts are likely to face their fair share of debate. However, the president's power to appoint the heads of regulatory agencies may have some direct bearing on various market sectors.

This kind of talk is speculation, however; the Clinton administration's approach was generally pro-business. Health care, which many believe most likely to benefit from a Bush administration due to expectations of more stringent rules involving when patients can sue their HMOs, has performed beautifully under Clinton. In the past five years, the S&P Health Care Index is up 336%, compared with a 209% rise for the broad S&P 500 Index .

It's the Health Care, Stupid

Only when Gore began to hammer away at the health care companies during his stump speeches did these stocks come under fire. With expectations for a Bush presidency mounting, the pharmaceutical and HMO stocks were stronger today, with the Amex Pharmaceutical Index up 2.2% today.

Much of the focus in the campaign revolved around how the candidates intend to add prescription-drug benefits to Medicare. Gore's plan would make the government the largest buyer of prescription drugs, able to leverage drug companies for the lowest prices, which could dampen profits and hamper research.

Bush's proposal would allow participating private health plans to compete for members, while the government subsidizes a portion of the costs of prescription drugs. But, he's going to face an uphill battle. Losses by GOP senatorial candidates (Spencer Abraham in Michigan, Slade Gorton in Washington and Rod Grams in Minnesota), who were on the side of fewer price controls, may make the GOP gun-shy in enacting such legislation.

Mike Krensavage of Raymond James noted that the big drugmakers traditionally have handled adversity well and could find ways to offset any threats to their profits. "All the talk we heard about the evil drug companies before the election is probably a lot of rhetoric," he said. "I've never believed that they would pursue the drug companies as aggressively as they suggested."

It's All Tech

The technology community, meanwhile, seems to have shrugged its shoulders.

"The technology community feel that Bush and Gore were both fairly pro-business," said Mike Droeger, a spokesman for SEMI, the Semiconductor Equipment and Materials International trade group, which, accordingly, didn't endorse any candidate.

SEMI is part of a coalition that is continually lobbying to expand the H1B Visa program as a means to satisfy tech companies' voracious appetite for high-skilled foreign labor; however, foreign visa limits have already been increased to 195,000 from 115,000 for 2001.

Technology companies have other concerns. A Republican-appointed head of the Federal Communications Commission would be more likely to auction off additional wireless spectrum, which could potentially benefit those companies.

Christine Callies, chief U.S. investment strategist at Merrill Lynch, believes the current environment is a prudent one, but were competition to increase in coming years from European providers, additional spectrum might be necessary.

A Bush administration may be more lenient with regard to current rules involving regional Bell operating companies and the requirements that they open local markets to competitors before they provide long-distance service. These rules were codified under the Telecommunications Act of 1996, which Gore would likely continue to support. Bush would probably also take a more laissez-faire approach to antitrust actions, a positive for telecommunications stocks.

Energy and Defense

One defense industry analyst says the defense sector is likely to benefit, regardless of which candidate takes the presidential election. William Fiala, of Edward Jones in St. Louis, says the only differences between a Bush or Gore presidency would be how fast the spending growth would be and how it would be divided.

"In terms of the big picture of defense spending, both candidates are likely to increase spending" as opposed to the declines seen during the past decade, he said. "Modest growth -- of 3% to 4% -- would be well received."

Among the key defense stocks are Lockheed Martin (LMT), General Dynamics (GD), Raytheon and Northrop Grumman (NOC).

Presidents Have a Lot of Juice

The president will have the power to make appointments to the Federal Energy Regulatory Commission, where Democrats enjoy a 3-to-1 advantage with one vacancy. The committee has the power to make policy regarding price caps for wholesale energy prices for utilities. Callies said the utility industry is suffering from a supply-and-demand imbalance; she believes Republican appointees to the FERC would favor a market-sensitive approach to pricing issues, rather than a regulatory approach.

There's also an expectation that Bush would be more likely to open parts of the Arctic Wildlife Preserve in Alaska for oil and natural gas exploration, which would be a positive for oil-producing stocks. That's despite the fact that new oil production wouldn't likely bear fruit for the market until long after Bush leaves office. Gore would be more likely to support tax incentives for fuel conservation, as well as stricter fuel economy requirements for the automotive companies.

TSC Staff Reporters Jamie Paton, Dan Colarusso and Thomas Lepri contributed to this story.

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