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Will Clinton, Wall Street mix?

Investors Look Toward A Clinton Presidency With An Eye On Construction, Engineering And Technology Stocks

Can Bill Clinton play on Wall Street? History says no. Traditionally, the conservative financial community frowns upon the possibility of a Democrat in the White House.

However, in these sluggish economic times, the probability of a Democrat in Washington for the first time in 12 years may not be met with much investor resistance.

The reason is obvious, market analysts say.

The economy.

Besides that ever-present headache, President Bush is fighting a monstrous deficit and a Congress that refuses to cooperate.

Because of that, the labeling of the Arkansas governor as a typical "tax and spend" Democrat to frighten the investment community apparently is not working. Change may not be as upsetting to Wall Street as the status quo.

"Traditionally, people would take a wait-and-see approach with a change," says Jim Jones, a vice president at Crews & Associates of Little Rock. "In theory, with Bush, the market would react better. With Clinton, there would be a 'let's see what happens attitude.'

"In reality, this year it probably would not make a difference."

As polls indicate a likely Clinton victory, investors are getting used to the idea.

"In the last couple of months, people sort of figured it would be a close race, but Bush would eke out a victory," says Jones, who strictly follows the bond market. "Now, there is a real feel that Clinton may have a legitimate shot, and people are trying to sort through what that means.

"... It's not bad news necessarily. Historically, the deficit has gone up no matter which party is in office. So, it probably does not matter much."

Ordinarily, analysts say, a victory by the Republican incumbent would be bullish for the bond market.

Investors would be more secure in what a Bush presidency would mean. Also, perhaps more importantly, there is the time-honored notion that Democrats and bonds mix like oil and water.


Increased spending can spark higher interest rates and drive bond prices down.

However, some believe the time is ideal for a loosening of government purse strings. Low interest rates and a stagnant economy could make government spending more palatable.

Jack Pedigo, vice president at T.J. Raney & Sons of Little Rock, says that if Clinton wins, "I'm of the opinion that tax-free municipal bonds are one of the most attractive places you could be. I read the papers and watch TV. You've either got to believe that the polls are wired or he's going to win. I believe he's going to win.

"If that happens, you're looking at a tax-free bond that probably would go up in value because the tax bracket would be affected."

A Clinton Market

If Clinton wins, which stocks win with him?

Because of a Clinton-Gore platform that calls for better infrastructure, an increase emphasis on education, health care reform and more environmental safeguards, most analysts believe these stocks would benefit:

* Engineering and construction.

* Transportation.

* Technology companies.

* Health maintenance organizations on the cutting edge of cost control.

* Tax-preparation companies.

* Waste-management companies.

The losers?

* Hospitals.

* Drug companies

* Insurers.

Among the big drugmakers already affected by Clinton's health care proposals are Bristol-Myers Squibb Co., Merck & Co. and Glaxo Inc. Pedigo says shares of Merck, the world's largest pharmaceutical company based in New Jersey, have dropped substantially as chances of a Clinton victory have risen.

It's difficult to pin the gloomy fate of drug and health care stocks on Clinton alone, analysts say. Health care has become such a major issue in the campaign that stocks of companies in the industry are likely to be affected regardless of who is in office--including independent candidate Ross Perot.

"They have killed the drug stocks big time," Pedigo says. "A lot of the drug stocks have gotten hammered simply because political pundits have said they want to stand on the drug companies to provide cheaper costs to medicine.

"Whoever's in office must address the deficit, jobs and the health care situation."

The engineering and construction industries could benefit most from Clinton's plan to rebuild America.

Clinton has earmarked more than $130 billion to plow into improving the nation's infrastructure -- the basic system of water supply, sewerage, transportation and communications.

"The infrastructure-type stocks will do well," says Ellis Sloan, vice president and portfolio manager for Meridian Management Co. of Little Rock. "That includes earth-moving equipment companies like Caterpillar and steel companies that specialize in roads, bridges and highways."

The three best infrastructure stock plays could be Caterpillar Inc., Ingersoll-Rand Co. and Indresco, PaineWebber chief strategist Edward Kerschner told The Wall Street Journal.

Nucor Corp., which operates the Nucor-Yamato steel mill near Blytheville, also could benefit to a lesser extent, Kerschner said.

Besides the infrastructure tab, Clinton's other major spending proposal is a $63 billion expenditure to better education. Such a commitment could mean good things ahead for technology companies like Apple Computer Inc., Sloan says.

Textbook publishers and companies moving into computer-based education also should get some market play.

Small Business Beware?

The biggest fear of a Clinton administration could be its effect on small businesses.

Under Bush, smaller industries stand to gain, says a Little Rock analyst after reading the president's new economic plan released in September.

"Bush is trying to rekindle the entrepre-neurial spirit that took off in the early '80s under Reagan by making it easier on small businesses to get credit and by pulling government regulation off their backs," the analyst says. "Ask the owners of your paper how they would feel to pay a 1.5 percent tax on worker retraining and health insurance for everybody. Faced with those decisions, they may not have started the newspaper.

"The fear is Clinton's proposals don't fully consider the obstacles that small business people face."

Four more years of Bush also would benefit health care stocks and retailers. Bush would not require small businesses to pick up the tab for the uninsured, instead relying on tax deductions.

His proposal for across-the-board tax cuts would help retailers, especially those geared toward upper-income shoppers.

And Perot?

Should the diminutive Dallas billionaire pull off history's greatest political upset, they probably won't be smiling on Wall Street.

Perot's "share the pain" philosophy to make dramatic changes and chisel away at the deficit could negatively affect the stock market, Meridian's Sloan says.

"This is not the time to add new taxes and to cut back in all areas of government spending," he says. "A large part of the recent federal deficits are related to the savings and loan bailout. That money does not create jobs and pull the economy forward like if it was directed toward public works and infrastructure.

"I don't think, with the weak economy, now is the time |for Perot's plan~. Most economists would agree."
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Author:Webb, Kane
Publication:Arkansas Business
Date:Oct 19, 1992
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