NEW YORK – President Bush’s election victory is shaping up as a potential bonanza for Wall Street, where firms are salivating about the possibility that he will follow through on his pledge to allow private investment of Social Security funds.
A second term for the Republican president also makes it likely drug makers can head off government-mandated price controls for now. The defense industry also looks like a winner, more regulatory victories may be in store for the Baby Bells, and look for a new push for oil drilling in the Alaska wilderness.
While the privatization of Social Security took a back seat in the election, experts predict the president will work with congressional Republicans, who boosted their majority in both houses, on what would be the most dramatic changes in the government retirement program’s 69-year history. In addition, the president has gone on record as supporting an increase in medical savings accounts for individuals.
Banks, investment firms, mutual fund companies and insurers would offer to help individuals manage these new private retirement investments, which could lead to billions of dollars in new funds under their control and higher profits if legislation clears Congress.
“The Bush administration is more oriented toward what they call the “ownership society,” said Ken McCarthy, chief economist for vFinance Investments Inc. “If people are going to have more control over their assets, people are going to need advice on how to manage those assets, and that can only help the financial services industry.”
That, in turn, will make financial stocks more attractive, analysts said.
Likewise, dividend-yielding stocks – a popular asset class in the uncertain market of 2004 – will continue to be a solid option. One of Bush’s most popular first-term tax cuts was setting the dividend tax rate at 15 percent, rather than normal income tax rates of up to 38.6 percent. That tax cut expires in 2008, but it’s expected Bush will work to make it and many other tax cuts permanent.
“It’s not coincidental that more and more companies are now raising their dividends. It’s the first time where it’s actually made sense from a tax perspective,” said Hans Olsen, managing director and chief investment officer at Bingham Legg Advisers.
Energy
The president is likely to call on Congress to revive stalled legislation that would have allowed private companies to search for oil, coal and natural gas on federal lands currently off limits to exploration and production, including Alaska’s Arctic National Wildlife Refuge. Such a move, part of Bush’s plan to reduce the country’s rising dependency on imports, could benefit large petroleum producers such as BP PLC, Anadarko Petroleum Corp. and Devon Energy Corp.
Bush also wants to make it easier for the oil industry to build new refineries. There hasn’t been a new refinery built in the United States in 28 years, and the industry complains about meager profit margins, hefty environmental costs and too much government regulation.
Financial services
In addition to benefiting from Bush proposals for Social Security privatization and health savings accounts, the nation’s brokerage firms and asset managers, including mutual fund companies, could be aided by a rising stock market.
“This should give the incentive to investors to look at financial stocks of companies that would manage these private assets,” said Sam Stovall, chief investment strategist at Standard &Poor’s in New York. “And if we have more money flowing into the equity markets, the capital markets divisions of diversified financial service companies should do well.”
Telecommunications
Michael Powell is expected to step down as chairman of the Federal Communications Commission after leading the agency to a series of deregulatory decisions that benefit the regional Bell telephone companies. President Bush’s replacements for Powell and a Democratic commissioner whose term is up will ensure a continuing GOP majority, leading to further deregulation with a goal of bridging the digital divide more quickly.
Freed of an obligation to lease new fiber-optic lines to rivals such as AT&T Corp. and MCI Corp., three of the four Bells – Verizon Communications Inc., BellSouth Corp. and SBC Communications Inc. – said in October they were accelerating plans to replace copper wires with fiber-optic cables, which can deliver high-speed Internet access to more homes, schools and businesses.
Biotechnology
Biotech titans Amgen Inc. and Genentech Inc. stood to lose the most if Kerry were elected and quickly moved to permit re-importation of cheaper versions of pricey U.S. drugs from Canada and elsewhere.
Now, with Bush headed to a second term, “the big issues for biotech are who the new president will appoint to key positions such as the FDA commissioner and other agencies if vacancies occur,” said Carl Feldbaum, president of the Washington D.C.-base Biotechnology Industry Organization.
The FDA post has been vacant since Mark McClellan left in March to head the government’s Medicare program.
Even though a $3 billion bond measure supporting stem cell research passed in California on Tuesday, Bush is expected to continue restricting federal funding to the field because of ethical concerns about the destruction of human embryos in some stem cell research.
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