On the Street, Blessed Be Gridlock
Nov. 9 -- With the presidential race as tight as a corset, with the politicians getting angry as roosters, with America on the edge of its seat, Wall Street can find succor in two things.
First, with the Florida votes getting recounted, there is the glimmering hope that all the damn metaphors we’ve been hearing lately will — like the rain, like the river that meanders, like the longest journey — come to an end.
Second, there’s a good chance that nothing much will get done in Washington over the next two years. Broadly put, that stands to be good for the markets, as it should keep well-intentioned politicians from monkeying with economic success. But on a sector-by-sector basis, forecasting who will benefit and who won’t is far trickier. Witness Wednesday’s tech selloff.
Blood and Gore
“America voted to sustain prosperity, not make any major changes,” says Morgan Stanley Dean Witter chief U.S. economist Richard Berner. “I think this is a vote for gridlock.”
The vote for gridlock would apply most should Vice President Al Gore somehow take Florida. With Republicans maintaining control of Congress, Gore would be hard-pressed to pass any major new spending packages. By the same token, he would be inclined to veto any major tax cut. Thus a Gore victory would maintain the economic status quo while continuing to pay down the deficit, an important priority on rate-obsessed Wall Street.
Ignoring the sectoral oddities of what might happen to drug stocks or tobacco stocks or Microsoft , that scenario is pretty market-friendly. It’s a recipe for lower bond yields, a tight fiscal policy and a benevolent monetary policy. It is for this reason that Treasury futures mounted a significant rally last night when the major television networks said Gore had won Florida, and then promptly gave it back when Florida’s outlook changed.
Yet with the race so tight, and with Gore the likely winner of the popular vote even if the Florida results stand and Texas Gov. George W. Bush wins the Electoral College, a Bush presidency would hardly be seen as carrying any policy mandate. Combine that with the Republicans’ slight House majority and a split-down-the-middle Senate (with the deciding vote going to the incoming vice president), and it seems unlikely that we’re going to see any major Bush initiatives.
