Posted By: Judy Smith
By Ellis MnyanduWed Nov 8, 8:18 AM ET
NEW YORK (Reuters) - U.S. stock futures pointed to a sharp
sell-off on Wall Street on Wednesday after Democrats swept
Republicans from power in the U.S. House of Representatives and
an undecided Senate race fueled caution.
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With control of the U.S. Senate likely to hinge on a ballot
recount that could take weeks, analysts said investors would be
pressed to sell stocks following a strong run-up made in
anticipation of gridlock within Congress rather than the wider
sweep garnered by the Democrats, who must now work with a
Republican-controlled White House.
"Not only is the market going to be taken by surprise on
the outcome, but the uncertainty about the Senate race could
create even more volatility," said Paul Mendelsohn, chief
investment strategist at Windham Financial Services in
Charlotte, Vermont.
A potential recount and possible legal challenges in
Virginia could delay the final result, dredging up memories of
the 2000 presidential election recount that lasted five weeks.
"Given the state of the overbought condition of the market
here, the market could take these results as an excuse to
really sell off sharply here. Things could get a little ugly in
ways we didn't expect or foresee," Mendelsohn added.
Virginia Democrat James Webb had an 8,000-vote advantage
over Republican Sen. George Allen (news, bio, voting record) out of more than 2 million
cast. A recount could stretch into December, leaving Senate
control uncertain.
S&P 500 futures were down 5.4 points, below fair
value, a formula that evaluates pricing by taking into account
interest rates, dividends and time to expiration on the
contract.
Dow Jones industrial average futures dropped 34
points and Nasdaq 100 futures fell 6 points.
Analysts said sectors likely to be under pressure from a
Democratic sweep include defense, tobacco, major pharmaceutical
and oil companies.
Shares of Pfizer Inc. (NYSE:PFE - news) were down 2.2 percent at
$26.70 in electronic trade, while Merck & Co (NYSE:MRK - news) slid 2.3
percent in Europe.
On the other hand, a Democratic majority in either house of
Congress would likely derail legislation aimed at reining in
mortgage finance companies Fannie Mae (NYSE:FNM - news) and Freddie Mac
(NYSE:FRE - news), which Democrats see as crucial in making home
homeownership affordable.
A Democratic victory is also seen positive for alternative
energy producers such as VeraSun Energy Corp. (NYSE:VSE - news), generic
drug makers such as Barr Pharmaceuticals Inc. (NYSE:BRL - news) and stem
cell research companies.
U.S. stocks rallied for two days before the election, with
the Dow Jones industrial average (^DJI - news) on Tuesday reaching an
all-time high of 12,196.32 and the Nasdaq Composite (^IXIC - news)
rising as high as 2,391.34, its highest since February 2001.
Stocks to watch include Sirius Satellite Radio Inc.
(Nasdaq:SIRI - news), whose stock rose 1.4 percent to $4.15 before the bell
after the company reported a smaller third-quarter net loss.
Hovnanian Enterprises Inc. (NYSE:HOV - news) after the homebuilder
forecast late on Tuesday it would report a fourth-quarter net
loss and 2006 profit at the lower end of its prior outlook,
citing land-related charges.
National Semiconductor Corp. (NYSE:NSM - news), a maker of analog and
power management chips, cut its second quarter revenue forecast
after the bell on Tuesday, citing weaker-than-expected demand
from mobile telephone makers.
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