Investors unfazed by Democrats' win

Drug stocks alone react to House, Senate sweep; media, others stay steady

By Published on .

Most Popular

what's the difference between an elephant and a donkey? Same zoo, different day, or so the stock market seems to think.

The Dow hit a record last Tuesday as voters lined up at the polls. It had a record close Wednesday after news of the Democrats' landslide. Stocks then pulled back a bit. But the market moved up 1.4% for the week, almost as if there hadn't been an election.

One sector took a hit: drugs. The Russell 1000 Drugs & Pharmaceuticals Industry Index last week fell 2.6%, giving up recent gains after reaching a two-year high last month.

The Democratic Congress is expected to push for Medicare to negotiate lower prices for seniors' government-subsidized drug purchases. Prescription-drug ads also could face scrutiny, and that's a big deal on Mad Ave.: Drug marketers account for 13 of the nation's 100 largest spenders.

The new Congress could affect media consolidation; Democrats are less likely to ease restrictions on consolidation and media cross-ownership. But that's not weighing down the sector: The Bloomberg U.S. Media Index reached a four-year high the day after the election.

This year's onslaught of negative ads proved a positive development for media, particularly local TV and cable. The day before the election, shares in cable giant Comcast Corp. hit their highest price since 2001.

Political ad spending broke records this year, shooting north of $2 billion-or about $26.50 for each vote cast, according to Ad Age's review of spending and voter-turnout data.

Overall, stocks are doing remarkably well amid a period of uncertainty. Investors may be factoring in gridlock; it's unlikely Congress will act soon on major issues such as the low capital-gains and dividend tax rates, now set to sunset in 2011. The market also appears to assume the economy will stay on track despite signs of slowing growth; GDP last quarter grew an anemic 1.6%, the lowest annual pace in three years.

The Dow Jones Industrial Average and the Dow Jones Wilshire 5000 rose 1% and 1.4%, respectively, in the wake of the election. The Ad Age/Bloomberg AdMarket 50 index last week closed up fractionally. The AdMarket has slipped 1.6% since hitting a four-year high last month.

Investors may be wise not to put too much stock in how the market reacts immediately after an Extreme House Makeover: Democratic Edition. The week that Republicans took over in their 1994 landslide, stocks fell marginally. The next year, the market rocketed 31%. Stocks kept climbing till the bubble burst in 2000.
In this article: