s voters were mesmerized yesterday by a Florida-vote recount to decide the closest presidential contest in memory, Wall Street investors and Washington advisers predicted it is unlikely the outcome would impact Wall Street or the economy.
The major spending or tax initiatives that investors fear would heat up the economy and fan inflation, analysts said, are unlikely to pass under a President George W. Bush or a President Al Gore, because neither would have a clear mandate from voters.
That is a comfort to investors and a business community growing as uneasy with big, Republican-style tax cuts as they have always been with Democrats' spending packages. Neither were possible under the Clinton administration, which is often in gridlock with a Republican-controlled House and Senate. That gridlock has occurred at a time the US economy has had its longest expansion in history, and political gridlock is expected to continue under a new president.
''For the markets, happiness is gridlock in Washington,'' said John Forelli, senior vice president of John Hancock Financial Services in Boston. ''The margin of victory is so slim it appears major change legislation isn't going to happen.''
But, the election comes as US and global stock markets are increasingly jittery - the technology-dominated Nasdaq Composite index plunged 184.09 points yesterday to 3231.70, down 5 percent - and some suggested a worst-case scenario on Capitol Hill, where sentiment is growing to spend some of the record federal budget surplus.
Some investors said they are anxious a Republican president might try to push through a tax cut, upsetting the dynamic in Washington they believe has helped ensure the nation's prosperity.
Already, sentiment for spending the federal government's $2.17 trillion surplus projected over the next decade is building. President Clinton and Republican lawmakers are negotiating a budget package that would use up a large portion of the surplus, a surplus that both Bush and Gore are also eyeing to carry out their campaign proposals.
Under a new administration, ''there'll probably be dangers they overspend, either with tax cuts or with spending. They're not going to be nearly as collaborative because they want to be top dog in the mid-term elections,'' said political commentator Kevin Phillips.
Phillips said the nation may be heading into a period of ''detrimental gridlock.''
The outcome of a Gore victory seems more predictable than a Bush win, however, analysts in both political parties said: The political gridlock that hampered Clinton's health care reform and led to drastic welfare reform would continue under Gore.
But if Bush wins, despite a razor-thin margin among voters, he would hold an advantage in negotiating his tax cuts with a House and Senate that his party still controls. Past incoming presidents have pushed through big fiscal packages soon after inauguration. President Reagan, who held a Republican majority only in the Senate but was elected in a landslide vote in 1980, was able to push through a massive tax cut after moving into the White House.
Bush, said Janet Yellen, former head of the Council of Economic Advisers under President Clinton, would have ''a greater ability to get things through,'' though she acknowledged he ''has such slim margins.''
It is more realistic, she said, that a President Bush would start with smaller initiatives that have bipartisan support. Yellen noted that a repeal of the inheritance tax, which was vetoed by Clinton in September, nevertheless had broad Democratic support and might be revived.
Other modest initiatives, such as ending the ''marriage penalty'' in the federal tax code, might also pass, while a major overhaul of Social Security reform would meet strong resistance. Both Gore and Bush have proposed sweeping plans to address a looming shortfall in the government's retirement program.
Kevin Hassett, who was economic adviser to former Republican presidential candidate John McCain, agreed. ''When there's a tight margin the only things government can do are the no-brainers, the things every reasonable person agrees we ought to do get done,'' Hassett said.
What is remarkable is that a buildup in the budget surplus during Clinton's eight-year administration - a dramatic turnaround from a deficit that peaked in 1992 at $340.5 billion - has turned tables in Washington and on Wall Street.
As a result, said Jeff Frankel, economist and professor at the John F. Kennedy School of Government at Harvard University who sat on both Clinton's and Reagan's economic policy teams, Wall Street views Democrats more favorably.
Indeed, fiscal prudence and surpluses have taken pressure off the bond market by keeping interest rates low. And the stock market historically has performed best during periods of low interest rates, as it did in the past five years, through 1999, when stocks posted double-digit gains.
With the risks of inflation rising, investors are feeling vulnerable to future interest-rate hikes by the Federal Reserve. In recent days, bond investors, expecting a Bush win after pre-election polls showed he was ahead, had sold Treasuries out of fear tax cuts might stimulate the economy.
The Dow Jones industrial average fell 45.12 points yesterday, closing at 10,907.06. Investor jitters were somewhat soothed by strong performances in tobacco and pharmaceutical stocks.
A Bush administration won't change things dramatically, Frankel said. Bush, he said, has overpromised on his tax and Social Security policies and will be unable to deliver on them all - a reality he will confront once he begins negotiating with Capitol Hill.
The Bush campaign has ''been allowed to get away with vague generalities,'' Frankel said. ''I don't think he'll do anything dramatic.'
