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As Fears Abate, Will We See a Market Rally?
Stock Market News
November 2004
As Fears Abate, Will We See a Market Rally?
By the time this reaches you the election outcome will be decided, and weâll see very soon if the pundits are correct in their prognostications. Many Wall Street veterans have said that the election outcome will have little long-term impact on the stock market, despite the candidatesâ different philosophies on taxes, trade, Social Security, and health care issues. Whatever their individual views on short- and medium-term opportunities, investment experts note that the market hates uncertainty and that, come November 3rd, one big question will have been settled. That may be true, but it seems likely that investors will remain worried - concerned about the stock marketâs response to the election outcome, the economy, corporate earnings, and the Iraqi conflict. Many experts suggest that investors spend less time worrying about these issues and look to monetary policy as the most important factor.
Market Response
Several pundits have suggested that stock market performance long-term is more likely to be affected by monetary policy, and by the all-important selection of Greenspansâs successor. In the short term, immediately after the election, most analysts expect a surge of some sort with growth stocks taking the lead.
Most expect that the market would respond most favorably to a Bush victory, but many note that stocks would do fine with a Kerry victory, too. They note that the market has been stymied by an overall atmosphere of fear stoked by the election campaigns - divisive campaigning that has used fear mongering to command votersâ attention. Electioneering has stoked some fundamental fears that are detrimental to confidence in the market - Republicans elaborating on terrorism and geopolitical threats, and the Democrats stressing economic fears. This fear-engendering scenario has helped boost oil prices to all time highs. After the election, many pundits believe weâll see a return to business as usual, to declining oil prices, a rally in stock prices, and a jump in bond yields.
Right now, investors have some great investment opportunities. Valuations have plummeted. Stocks are at some of the cheapest levels theyâve been in the past two decades - at a time when S&P earnings are up almost 20 percent for the year. Bullish analysts suggest that investors do a little research and some bargain hunting. Pay attention to earnings reports issued in late October and early November. Based on initial releases for third quarter earnings, a modest technology recovery appears to be underway for industry stalwarts like IBM and Microsoft as well as well-positioned new entries like Google. Companies that provide products and services (with the exception of consumer staples) are struggling, while business-to-business operations have posted better results.
After a summer of lackluster trading, it may be time to move in anticipation of a post-election lift-off.
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