Posted By: Judy Smith
By Ellis MnyanduWed Nov 8, 9:09 AM ET
NEW YORK (Reuters) - U.S. stock futures pointed to a drop
on Wall Street on Wednesday, with shares of companies such as
Pfizer Inc. (NYSE:PFE - news) in the spotlight, 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 stocks could see a
pullback after a strong run-up in the past two days.
Investors had bet the elections would result in gridlock
within Congress rather than the wide sweep garnered by the
Democrats, who must now work with a Republican-controlled White
House.
Even so, hopes that underlying strength in the economy
would help underpin corporate profits regardless of the
Democratic win, caused stock futures to back off from their
worst levels just ahead of the opening bell.
"The Senate race is a little bit of a surprise. Even though
the (final results) are not in yet, the Democrats did much
stronger, so the market is sort of digesting that," said Peter
Dunay, investment strategist at Leeb Capital Management in New
York.
"Given the rallies we've seen, it may not be as bad a
market as market participants may initially feel. As long as
the earnings picture and the economy remain as strong as they
do, the market should drive off of those fundamentals. The
Democrats have no plans to do anything harmful to the U.S
economy."
Still, a potential recount and possible legal challenges in
Virginia could delay the final Senate result, dredging up
memories of the 2000 presidential election recount that lasted
five weeks.
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 7.2 points, below fair
value, a formula to evaluate pricing taking into account
interest rates, dividends and time to expiration on the
contract.
Dow Jones industrial average futures dropped 43
points and Nasdaq 100 futures fell 13.75 points.
Analysts said sectors likely to be under pressure from a
Democratic sweep include defense, tobacco, major
pharmaceutical, oil companies and discount retailers.
Shares of Pfizer Inc. (PFE.N), a Dow component, fell more
than 2 percent to $26.70 before the bell in electronic trading,
while Merck & Co (NYSE:MRK - news) dropped 2 percent to $45. Shares of
discounter Wal-Mart Stores Inc. (NYSE:WMT - news), another Dow
constituent, fell 1.3 percent to $47.05.
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 as 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 had 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.
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