- The Washington Times - Thursday, November 9, 2000

Uncertainty about the outcome of the presidential and congressional elections hung like a cloud over Wall Street yesterday, with business leaders saying the unprecedented deadlock created by razor-close races ensures no radical changes will come from Washington next year.

The elections gave Wall Street a major dose of the gridlock investors have come to love, as neither the president-elect nor Congress will have a mandate or the wherewithal to enact large spending programs or big tax cuts that could imperil the large federal budget surpluses credited with holding down interest rates, economic analysts said.

Yet the markets could not muster a rally yesterday, as investors and business leaders tried to sort through the ramifications of one of the closest presidential elections in history. Fears about slowing growth in the economy and declining profits continued to predominate, sending the Nasdaq Composite Index plunging by 184 points to 3,232. The Dow Jones Industrial Average slid 45 points to 10,907.

"It adds further uncertainty," said Larry Rice, chief investment officer for Josephthal & Co., saying investors do not know which businesses will prosper and which will be targeted for regulation while the outcomes of the presidential race and makeup of Congress remain up in the air.

"Everyone's going to sit and watch and wait," he said.

"It's going to be very difficult to get your agenda through whether you're [Vice President Al] Gore or [Texas Gov. George W.] Bush, with such a narrow mandate" and no clear majority in Congress, said Arthur Hogan, chief market analyst at Jefferies & Co.

"We should have the status quo, which is very good for Wall Street," he said. "I would argue that one of the reasons the last eight years have been so successful for the economy has been because of the gridlock."

Still, uncertainty about the future fed anxiety, which is poisonous to the markets.

Alan Skrainka, chief market strategist with Edward Jones in St. Louis, said the apparent stalemate in Congress will be good for investors and the economy but could turn threatening if the economy falls into a recession and Congress is not able to respond to calls for action.

"That really could hurt consumer confidence. People could be hurt by the inaction. People tend to want Congress to act in a recession," he said.

On the other hand, the threat of a downturn could be just what it takes to galvanize members of Congress to put aside their differences and pass a compromise package of tax cuts and spending boosts, he said.

No matter who is declared the winner in the presidential election, the new chief executive will have to scale back his most ambitious plans and move toward the other party if he hopes to get any legislation passed, analysts said.

Mr. Bush, the Republican candidate, would have to drop his tax-rate reductions for now and concentrate on measures that could win Democratic support, such as a cut in inheritance taxes and enhanced tax incentives for savings, Mr. Skrainka said.

Business leaders attending a meeting of the U.S. Chamber of Commerce yesterday said Mr. Bush also may have to set aside, for now, his plan to partially privatize Social Security by enabling taxpayers to invest some of their payroll taxes in stocks and bonds.

"This could go down in history as a tainted election," said Greg Valliere, chief strategist with Charles Schwab Washington Research, since Mr. Bush did not garner a majority in the popular vote. The race for Florida's 25 electoral votes and the White House is too close to call.

"Bush will have to go very slowly on Social Security" since Mr. Gore, the Democratic candidate, and those who voted for him oppose any changes in Social Security, he said.

Mr. Bush also would have to soft-pedal his plans to promote school vouchers and other "school choice" measures, since one of the many mixed messages of the election was the defeat of school voucher referendums in California and Michigan, the business leaders said.

Perhaps the biggest change Mr. Bush could make as president would be holding back the tide of environmental, labor and other regulations that Mr. Gore is promising, the analysts said.

Rather than stifle the development of oil and gas resources, for example, a Bush administration might facilitate energy exploration. And most likely it would settle the landmark antitrust case against Microsoft by the Clinton administration, they said.

Thomas J. Donohue, the chamber's president, said business leaders will have to work with both parties to try to find areas of agreement where legislation can be passed.

"The government mix really doesn't leave anybody in charge," he said. "We're going to have to form a coalition government" and find "practical" ways to resolve economic problems, he said.

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