Vote buoys Wall Street: Bush victory looks good for drug, defense firms

NEW YORK — President Bush's victory in Tuesday's election is shaping up as a potential bonanza for Wall Street, where firms are salivating about the possibility that he will follow through on his pledge to allow private investment of Social Security funds.

A second term for the Republican president also makes it likely drugmakers can head off government-mandated price controls for now. The defense industry also looks like a winner, more regulatory victories may be in store for the Baby Bells, and look for a new push for oil drilling in the Alaska wilderness.

While the privatization of Social Security has taken a back seat in this current election, experts predict the president will work with congressional Republicans, who boosted their majority in both houses, on what would be the most dramatic changes in the government retirement program's 69-year history. In addition, the president has gone on record as supporting an increase in medical savings accounts for individuals.

Banks, investment firms, mutual fund companies and insurers, of course, would offer to help individuals manage these new private retirement investments, which could lead to billions of dollars in new funds under their control and higher profits if legislation clears Congress.

"The Bush administration is more oriented toward what they call the 'ownership society,' " said Ken McCarthy, chief economist for vFinance Investments Inc. "If people are going to have more control over their assets, people are going to need advice on how to manage those assets, and that can only help the financial services industry."

That, in turn, will make financial stocks more attractive, analysts said.

Likewise, dividend-yielding stocks — a popular asset class in the uncertain market of 2004 — will continue to be a solid option. One of Bush's most popular first-term tax cuts was setting the dividend tax rate at 15 percent, rather than normal income tax rates of up to 38.6 percent. That tax cut expires in 2008, but it's expected Bush will work to make it and many other tax cuts permanent.

"It's not coincidental that more and more companies are now raising their dividends. It's the first time where it's actually made sense from a tax perspective," said Hans Olsen, managing director and chief investment officer at Bingham Legg Advisers.