Marketplace: News Archives

Thursday, November 9, 2000
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It's Thursday, November 9. I'm David Brancaccio.

It's a Wall Street axiom that markets hate uncertainty. For a time today one could watch the stock indices for a numerical readout of the wide swings of uncertainty sweeping through the nation as Florida recounted presidential ballots. As Democrats raising the possibility of a court fight over the election, the Dow dropped two point seven percent, although the index a good portion of that by day's end. From New York, Marketplace's Michelle Brier talked to some experts today that will help us parse the market's edginess today.

Brier: "There's little question that the markets were listening closely as Gore campaign officials, led by campaign manger Bill Daley, suggested the Vice President would contest the Florida election results in court."

Daley: "We believe that with so much at stake steps must be taken to ensure that the people's choice becomes president."

Brier: "On those words, stock prices sank. The Dow dropped 185 points in mere minutes. The Nasdaq lost about 150. And while a late day recovery erased much of those losses, the sharp reaction by investors was not taken lightly by market professionals."

Johnson: "The implication of what they are saying is that this is gonna be a long drawn out affair and we wont know who won the presidential race."

Brier: "Hugh Johnson is chief investment strategist at First Albany Corp."

Johnson: "Investors, not knowing who is going to be the president, not knowing who's policies will prevail over the next few years, tend to back away from the markets and that's particular true of foreign investors."

Brier: "It's not just the short term uncertainty that has investors worried, says political economist Tom Gallagher."

Gallagher: "It's possible the winner, whoever he is, is going to be tainted in his ability to govern for the next four years. If it's bush, he might be tainted by the fact he didn't win the popular vote, if its gore, it might be the fact that he got in on a technicality."

Brier: "Even as wall street eyes remained focused on the recount in Talahassee, other news was dragging the markets down including a revenue warning by IBM, an earnings warning by retailer best buy, and an analyst downgrade of Walt Disney despite its great earnings because of concerns of future ad sales. In New York, I'm Michelle Brier for Marketplace."

Stan Collender is a veteran federal budget watcher at Fleishman Hillard. While he watched with interest as share prices dropped at that particularly tense moment in the election controversy today, he argues that, overall, markets will soon get used to the fact that Washington won't change much, regardless of the outcome. This will play out in the bond market, Collendar believes, as players realize that the current make of congress makes a deep tax cut unlikely.

Collander: "The surpluses we're projecting over the next decade or so are likely to be preserved rather than spent away or used for tax cuts. It means debt reduction, downward pressure on interest rates, and that's almost irrespective of whether it's a Gore or a Bush in the White House at the moment. Because the numbers on Capitol Hill simply tell you that they don't have the votes, they don't have the wherewithal, they certainly don't have the consensus to really make anything big happen."

You seem to be suggesting that in a perverse sense, gridlock is good for keeping the budget balanced.

Collander: "Well, what you've got to keep in mind, David, is that yes, it's good in terms of not putting in place a large tax cut or a large change of entitlement. There's not going to be a huge change in Medicare or Social Security. There just aren't the votes to do it. But it doesn't mean there's not going to be any additional spending. What it's likely to lead to is some incremental changes up or down every year. And when you're talking about the federal budget, you're now talking about incremental changes being $30 to $40 billion up from current levels. But that's not something the bond market is going to be terribly exorcised about because we're talking about a ten trillion dollar economy, and that's barely a rounding error. Compared to the damage that could be done, this is actually pretty good news."

Stan Collendar watches the Washington numbers at Fleishman Hillard.

The bond market rose today, with the yield on the ten-year Treasury note falling to 5.81 percent. A major influence here was the government's latest report on wholesale inflation. On the unpleasant side, overall producer prices climbed by 0.4 percent last month. You can blame higher food costs and a jump of more than 5 percent in natural gas prices. But analysts are looking beyond the surface, at the so-called "core" rate of inflation, which ignores fluctuations in food and energy costs. That figure was actually down by a 0.1 percent in, with a sharp decline in the prices of cars and trucks there. Bob Moon reports these numbers are likely to give some comfort to the inflation-wary Federal Reserve.

Moon: "Strip away rising energy and food costs, and the inflation outlook actually looks pretty good to T. Rowe Price analyst Alan Levinson."

Levinson: "We are at virtual price stability. We did get further pass through of higher energy prices, they were up 1.4 percent. But away from those volatile food and energy categories were are down a tenth of a percent and have been just creeping up this year at about a one percent rate - good price performance."

Moon: "Is it good enough to keep Federal Reserve policymakers from raising interest rates when they meet next week? They've left borrowing costs unchanged at their past three meetings, and the consensus is for more of the same."

Wyss: "From the Fed standpoint, it's got things going about as well as it can."

Moon: "Standard and Poors analyst David Wyss."

Wyss: "I think their standpoint right now is pat themselves on the back and go off and enjoy Christmas. My guess actually is the next move will be down and it won't come for, probably, the middle of next year."

Moon: "On the other hand, business economist Ray Perryman at Southern Methodist University says the overall wholesale increase does have the Fed's attention, and it may not be content to stand by and do nothing."

Perryman: "The Fed is terribly inflation sensitive at this point, they don't always pay attention to the source of that inflation in the sense that they'll try to respond to it even when it's an area where realistically they're unlikely to have much impact. So I think there's probably a bias at this point toward additional rate increases."

Moon: "But analyst Alan Levinson says energy prices cut both ways."

Levinson: "As long as the energy price increases stay in the energy sector, than most of the effect on the broader economy is that higher energy costs act like a tax on the consumer, and slow consumer demand, which is something that the Fed would like to see."

Moon: "As long as energy costs don't spread too far, Levinson says he thinks the Fed - as he puts it - 'will be cool with it.' I'm Bob Moon for Marketplace."

And that's the top of our news for Thursday. Today, the Dow Jones Industrial Average ended down 72 points or 0.66. The Nasdaq ended down less than a percent after much more anxious times earlier in the trading day. More details when we do the numbers.