Today: A small market rally has Wall Street watchers searching for hints about the presidential election. Also: Apple (AAPL), Netflix (NFLX) and social-networking stocks fall, while Hewlett-Packard (HPQ) and Jive Software gain.
Stocks move higher, analysts look for Election Day clues
Wall Street got a tidy little bump Tuesday as Americans took to the polls to elect a new president, a common occurrence that still left reporters searching for meaning in the move in regards to the election.
The Dow Jones industrial average has gained an average of slightly less than 0.8 percent on election days since 1896, the Wall Street Journal reported Tuesday morning, and the blue-chip stock index beat that average Tuesday with a gain of 1 percent. Prognosticators looked deeper, analyzing short- and long-term movement and sector performance, in an effort to find any action that hinted Wall Street had an idea who would win the contest between President Barack Obama and challenger Mitt Romney.
The general consensus is that Wall Street is hoping for a Romney win, with investment managers seeing the former leader at the Bain private equity firm as a friendlier president for investors. The Journal noted that stocks moved noticeably higher not long after an erroneous report said that Romney was leading strongly in early voting in Ohio, and Reuters reported that gains in energy and defense stocks signaled belief in a Romney victory. The former Massachusetts governor is friendlier toward traditional energy sources while the incumbent favors investment in renewable sources, and Romney seeks to boost military spending.
"Defense stocks are moving up, and coal stocks are up too, which are two sectors that are going to react more to a Romney victory than a President Obama victory," OptionMonster co-founder Jon Najarian told Reuters.
The long-term trends favor Obama, however. Studies have found that if stocks rise in the fall, the incumbent will win -- UBS analyst Art Cashin says an increase between Labor Day and Election Day gives the incumbent a win about 90 percent of the time, while S&P Capital IQ strategist Sam Stovall says a rise from August to October since 1900 has given 80 percent of incumbents a victory.
Both cases are true, as the markets have improved since late summer.
"The incumbent tends to get re-elected when the market is doing well," Northern Trust chief investment strategist James McDonald told Bloomberg News. "If the market has done well, that means the economy is doing well, that means the incumbent has a better chance."
S&P's Stovall also pointed out that higher-yield dividend stocks have dropped of late, which could signal a belief that Obama will win -- The president has said he wants higher tax rates on dividend yields, opposite of his opponent's stated beliefs.
No matter the victor, trends have appeared in postelection trading. Research by Sundial Capital Research CEO Jason Goepfert shows a correlation between the direction stocks take in the trading session directly following an election and stock movement in the next week. Since 1950, the markets have increased the day after a presidential election six times, and all six have seen the positive movement continue into the next week, with an average weekly gain of 1.3 percent. In the case of a down day on the Wednesday after an election, the market has the turned sour through the next week six out of eight times, with an average drop of 1.3 percent.
"The difference was similarly stark over the next two weeks, then turned random after that," Goepfert told The Journal. "So short-term bulls may want to prefer an up day on Wednesday."
Longer-term, stocks have done well after presidential elections since Bill Clinton won his first term in 1992, with one notable exception -- the 2000 election, which was not decided for weeks due to a dead heat between George W. Bush and Al Gore that was eventually decided by the U.S. Supreme Court.
The lesson: Wall Street wants to know the winner Wednesday, and begin to move on.
"There's been a lot of talk that once the election is decided, no matter how it went, just to the have the uncertainty over would be good for the market," LibertyView Capital Management president Rick Meckler told Reuters. "Really it's a bit of the carry-over from the Bush-Gore election."
Tech stocks not as successful as blue chips, Apple dips
While the Dow enjoyed a mini-rally and the Standard & Poor's 500 wasn't far behind with a 0.8 percent gain, technology stocks did not keep up the pace Tuesday. The tech-heavy Nasdaq composite index gained 0.4 percent and the SV150 index of Silicon Valley's largest tech companies needed a late rally to gain 0.3 percent.
Apple opened with a strong increase, but then the recently burdened tech titan trended down throughout the day after Reuters reported that it had reached a deal on e-books with the European Union that would give Amazon the ability to resume undercutting its rivals on price. The Cupertino company's shares dipped 0.3 percent on the day in volume much lower than the average for the past month, which has seen the stock dip close to bear-market territory.
Social-networking stocks took a beating Tuesday, as the strongest long-term gainer in the bunch, LinkedIn, took an unexpected dip. The Mountain View professional-networking company declined 2.9 percent despite positive recent analyst comments following its earnings report last week. San Francisco online-reviews site Yelp fell farther on a percentage basis with a 4.5 percent decline, while Facebook fell 0.4 percent and Zynga stayed steady at its already-depressed price of $2.24.
On the positive side, Hewlett-Packard was one of the leading gainers in the Dow Jones index with its second straight positive day since announcing an increased contribution to Linux. The Palo Alto tech giant increased 2.8 percent Tuesday to close at $14.40, 5 percent higher than the decade-low price of $13.68 the stock reached in Friday's session. Palo Alto neighbor Jive Software had an even more impressive day, gaining 13.8 percent following a pair of acquisitions announced late Monday.
Netflix falls as Amazon challenges, analysts question
Netflix, which has accounted for some positive stock movement in the past few sessions, dipped Tuesday amid a new form of competition and uncertainty about its future.
Amazon, which has been building up its library of streaming-video options to battle the Los Gatos video-on-demand leader, announced Tuesday that it would begin offering a monthly subscription-fee option to its Prime service, which previously only offered annual payments. While the $7.99-a-month fee is the same as Netflix charges, Amazon also provides free shipping on physical goods through the program as well as e-book lending.
"As Amazon continues to add movie and TV content to Prime, we see it likely adding more competitive pressure to the legacy online video services," R.W. Baird analyst Colin Sebastian wrote Tuesday.
The move is just another headache for Netflix, which has been dealing with activist investor Carl Icahn's announcement of a 10 percent stake in the company, which sparked rumors of acquisitions and a stock-price leap.
With renewed competition and endless questions about its destination, Netflix is at a crossroad that will be very difficult to traverse, analysts told Mercury News reporter Troy Wolverton.
Netflix will either be "a high-growth, unprofitable business or a low-growth profitable one," Wedbush Securities financial analyst Michael Pachter said, and their strategy doesn't seem to reflect that.
Netflix shares dipped 2.4 percent to $76.37 Tuesday; Amazon, after dual wins over Apple and Netflix, climbed 1.4 percent to $237.56.
Silicon Valley tech stocks
The tech-heavy Nasdaq composite index: Up 12.27, or 0.41 percent, to 3,011.93
The blue chip Dow Jones industrial average: Up 133.24, or 1.02 percent, to 13,245.68
And the widely watched Standard & Poor's 500 index: Up 11.13, or 0.79 percent, to 1,428.39
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/mercbizbreak.