Stocks May Win With Democrats

CHANGE is in the air; but Wall Street is not totally unhappy. The US stock market is expected to move up in the weeks ahead, anticipating fiscal initiatives from the newly elected Clinton administration.

To Wall Street, some measured federal stimulus could help boost corporate earnings and thus encourage higher stock prices.

The bond market, however, is not quite so sanguine. Rising interest rates and slumping bond prices reflect concerns among traders about the very same expansionist programs.

"Wall Street has assumed for some time that Bill Clinton was going to win," says Hildegard Zagorski, an analyst with Prudential Securities Inc. So any adverse impact from a Clinton presidency has already been largely discounted. "What the investment community wants to know now is what the governor plans to do next, who his Treasury secretary will be," and what his budget-plan will look like.

"We see the market going higher in the weeks ahead, with a good year-end rally," Ms. Zagorski adds. "But there still could be some selling by disappointed supporters of President Bush, as well as some profit-taking by investors who have been buying stocks that should perform well under Clinton." Most importantly, she says, the market survived a landslide Democratic victory. The Dow Jones industrial average did decline 29.44 points Wednesday on "profit-taking." Historical patterns

If history is any guide, market gains could be sizable. According to Richard Sylla, an economics and finance professor at New York University, total returns on stocks have risen between November and Jan. 31 after every presidential election since World War II where there has been a change of party.

"It didn't matter which way the change went, Republican to Democratic or Democratic to Republican," Mr. Sylla says.

Moreover, market gains have been substantial in the initial year of two out of the three new Democratic administrations since the Great Depression of 1929 - in 1933, the first year of the Roosevelt administration, and in 1961, the first year of the Kennedy administration. The exception was in 1977, under Jimmy Carter; but the global economy then was saddled with unusual circumstances: high interest rates and concern about energy supplies.

In the mid-to-late 1970s, investment money flowed into assets other than stocks, such as high-yield certificates of deposit and money market accounts. Today, by contrast, there are "no real investment alternatives other than stocks," says Gene Jay Seagle, vice president of Gruntal & Co. "The stock market is definitely the place to be now."

Still, this will be a selective market, he says, with stocks that are linked to the "Clinton agenda" doing best. Mr. Seagle says such sectors include stocks relating to health management, heavy equipment, construction, and high technology. Regarding bonds, Seagle sees some play for municipal bonds, stemming from Mr. Clinton's desire to improve the nation's infrastructure.

Most market analysts here say the ingredients for economic recovery, such as low interest rates, are now in place. Merrill Lynch, Pierce, Fenner & Smith Inc. expects an "upbeat finish" for stocks in 1992, but the possibility of a market correction next year. Market is high already

"The market has done very well lately, up 3 percent to 4 percent for the Standard & Poor's 500 and up some 7 percent for the NASDAQ [smaller stock] listing since Oct. 5," says Dennis Jarrett, head of technical analysis for Kidder, Peabody & Co. So it would not be a surprise if there were at least to be a "pause" - or only a modest rise - during the next few weeks, as investors take closer scrutiny of Clinton, he says.

The Dow is currently only about 150 points off its all-time high of 3,413.21, recorded June 1, 1992.