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Investors plot ride on GOP coattails
By HELEN HUNTLEY, Times Staff Writer
© St. Petersburg Times This week's elections gave Republicans control of Congress, which brightens prospects for reforms benefiting a wide range of businesses, from drug and health-care companies to defense contractors and oil drillers. But playing the political possibilities into stock market gains will be no slam dunk for investors. "There's a fairly long list of things that might happen that would be of benefit; the hard part is figuring out realistically which ones have the greatest likelihood of coming into being," said C. Fraser Evans, senior economist for Liberty Funds Distributors in Boston. At the head of his list: Some type of Medicare coverage for prescription drugs. "Republicans want to go into the next presidential election having enacted a drug benefit for seniors," he said. "I am absolutely certain that something will get passed and that it will not be too onerous for the pharmaceutical companies." But even a Republican Congress isn't likely to give President Bush everything on his agenda. And when companies do benefit from legislation, the impact will not always be big enough to create a payoff for investors. "Maybe the FCC will change regulations enabling the Bell operating companies to compete more vigorously," he said. "It's an incremental benefit. It's not enough to make you run out and buy" the companies' stock. "We might see more tax incentives for domestic drilling and some oil exploration companies might benefit from that," he said. "We're probably going to see less harassment of companies like Microsoft over antitrust issues and that should be a boost to the technology sector in general." University of Florida economics professor David Denslow said the Republican agenda should get a boost from changes in committee chairmanships now that Republicans have a slim majority in the U.S. Senate. "The standard guess would be that some things businesses have been pushing for a long time will get passed, but it's still close," he said. "I would think chances for trade legislation passing have improved. That could help companies that depend quite a bit on trade, such as Boeing and some of the telecommunications and financial services companies." Jeffrey Saut, chief investment strategist for Raymond James & Associates Inc., said tobacco companies and companies with asbestos exposure might win caps on their legal liabilities. And he said a Republican-controlled Congress could be a plus for defense contractors. But Standard & Poor's aerospace and defense analyst Robert Friedman predicts mediocre shareholder returns for the defense sector. "Many in the investment community are counting on a combination of big sustainable hikes in defense spending due to the war on terror and a possible strike on Iraq, and military procurement reforms," he said. "We believe that Congress will restrain such spending to take into account other budgetary concerns." And analysts point out that the Republican majority is not large enough to end a filibuster, giving Democrats the power to prevent passage of a bill. "We're only talking about a couple more votes, not a landslide that gives you a two-thirds majority," said Ann Cody, an analyst with Hilliard Lyons in Louisville, Ky. She said corporate profits drive the stock market, not the political party in charge. "Clearly there will be winners and losers," Saut said. "It's just difficult to identify them. And I don't think we've entered a new bull market. At best we're in a trading range environment no matter who gets elected and no matter how low they cut interest rates." -- Helen Huntley can be reached at huntley@sptimes.com or (727) 893-8230.
 © 2006 • All Rights Reserved • St. Petersburg Times
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From the Times Business report
From the AP
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