The news on the Street this week is the election results. Specifically, how will the stock market respond in the coming weeks and which sectors of the market will win or lose due to the Democrats' control of the House and Senate. U.S. stocks rallied for two days before the election, with the Dow Jones Industrial Average reaching an all-time intraday high of 12,196.32 on Tuesday, and the Nasdaq Composite rose as high as 2,391.34, its highest point since February 2001.
U.S. stocks initially slipped on Wednesday as the uncertainty of the Senate's fate caused the market to give up some of the gains seen during the past few days. However, stocks closed strong Wednesday, pushing the Dow to another record high as technology stocks soared and amid news U.S. Secretary of Defense Donald Rumsfeld resigned.
Many analysts feel providers of managed care, drug distribution companies, and pharmaceutical businesses will be the most affected by election results. If Democrats succeed in placing tighter restrictions on them, profits will most likely suffer. Shares of drug maker
dropped 3.3 percent to $44.39 yesterday, while
shares also fell 1.9 percent to $26.55.
According to Tobias Levkovich, chief US equity strategist at Citigroup Investment Research and Hans Olsen, chief investment officer at Bingham Legg Advisers in Boston, military contracting and service industries may also be affected if the Pentagon receives smaller allocations under a Democratic House and if Congress approves an increase in the minimum wage. "There's a sense that things in Iraq aren't going the way people had hoped. Along with that, it's costing us a tremendous amount of money to be there, which is killing our budget (with) deficits," said Olsen.
The Stock Market Game lesson, "What Causes Stock Prices to Change?" may be helpful as you discuss the effects of the midterm elections. Also, you may notice that students are starting to focus on the rankings page as the competition nears its close. Vying for a shot at the winning portfolio may tempt students to swing for the fences with ill-advised investments. To help them make informed decisions about their trades, be sure to check out the SMG lesson "Buy, Sell, or Hold?" Both lessons are accessible in the Lesson Sequence section of the Teacher Support Center.
This article was written by a staff member of The Stock Market Game.