End of election uncertainty could wake up sleepy stock market
On Wednesday, Nov. 3, when it became apparent that President George W. Bush had been re-elected, the Dow Jones industrial average climbed 101 points. That was not a shock to Central Iowa investment experts.
“Traditionally, the market hasn’t cared who won; it cares more that there were no surprises,” said James Spooner, vice president for investments at UBS Financial Services Inc.
“With the re-election of the president and a House and Senate in Republican hands, that means the same agenda for the foreseeable future, and that translates to no surprises, all in all,” Spooner said. “The market should be pleased with the outcome.”
The long and closely contested presidential campaign, the lingering threat of terrorism, the war in Iraq and a hard-to-decipher economic story have conspired to keep the investment scene relatively quiet in 2004, several local stockbrokers said.
“People have been sitting and waiting for months,” said Kevin McLaughlin of BDF Investments in Johnston. “Investors been very tentative, because they’ve been concerned about the economy and the outcome of the election.”
“It’s been kind of a cautious environment,” agreed Craig Light, a financial adviser at Piper Jaffray. “There has not been a lot of trading except for rebalancing portfolios.”
So what have Iowans been willing to dabble in?
“In a word, ‘dividends,’” said UBS sales manager Jymm Oplt. “Those stocks paying dividends have significantly outperformed non-dividend-paying stocks. The tax laws have really made a difference in the investors’ thinking on the issue and it has paid off, year-to-date.”
“It’s always good to have real estate as a damper [along with stocks],” Light said. “I have had quite a few clients go into REITs [real estate investment trusts], which have had a pretty good run this year.
“Considering where interest rates are, we’ve been getting some good returns on REITs. The idea is to not get over-concentrated; it’s best to get geographic dispersal and different types of buildings.”
McLaughlin argues that the market has been held back in 2004 by basic misperceptions. “People are being misled about economic progress,” he said. “Everyone cites the payroll survey [when they discuss] job creation, they don’t cite the household survey, which is a compilation of businesses and jobs created and lost where unemployment compensation is not paid. Since November 2001, when the recession ended, according to the household survey, 3.25 million jobs have been created; these numbers reflect the people starting a business or becoming a real estate agent, for example.
“It’s kind of like generals fighting the last war.A lot of the time, politicians and economists are looking at statistics that don’t tell the whole story. Everybody’s upset about outsourcing, but that’s been going on in this country for 100 years. When you’re the most innovative, industrious people on the planet, you find new ways and new things to do. You stop doing things that no longer offer you the competitive advantage. Our economy has been more productive and growing faster than that of any other country in the world.”
In the near future, Light said, “the idea is to get the wealth-creation cycle going again. The Federal Reserve focuses on fighting inflation, and that comes around full circle — when inflation is low, and companies are doing well, that’s the foundation of the wealth-creation cycle.”
In Spooner’s view, “with lower interest rates, a good stock return in 2003 and a tremendous amount of investable assets, for the right idea Iowans are more than willing to put money to work. Finding the right idea is perhaps the biggest challenge.”
McLaughlin offered these suggestions, based on recent results: “I’ve just been trying to get my clients to invest in things that generate a lot of income. A lot of the financial sector has been a terrific opportunity over the past year. Real estate has been a terrific income and appreciation opportunity over the past year.
“Also, there’s the consumer discretionary sector, where you find companies like Altria [the parent company of Kraft Foods North America, Kraft Foods International, Philip Morris USA and Philip Morris International]. That’s where we’ve found a lot of value.”