The Bulls and Bears Cast Their Votes

VOTERS DON'T GO TO THE POLLS UNTIL NEXT WEEK, but Wall Street is already casting its ballots. Anticipating a changing of the guard and a new economic game plan focusing on growth rather than fighting inflation, the stock market has largely rallied behind Governor Bill Clinton. But in the bond market, the Democratic ticket is receiving a vote of no confidence. Since Labor Day, yields on 30-year Treasury bonds have soared 41 basis points, to 7.61%. Yields jumped 9 points last week. Bond traders are worried that Clinton's economic program will be inflationary and lead to larger budget deficits, higher interest rates and perhaps another recession.

Wall Street has typically fared better under Republicans than under Democrats. Stocks skyrocketed 129% under the Reagan Administration, for instance, in contrast to a measly 1% during the Carter years. The market has climbed 37% under Bush but has behaved erratically in recent months owing to a dismal U.S. economy and global currency turmoil. Although stocks reacted favorably last week in response to reports of higher corporate earnings, fewer jobless claims and signs of a rebound in housing, analysts say the market is looking forward to a change in the White House. Not so the bond market, which has enjoyed a 12-year reign of sliding interest rates and tamed inflation.

But like voters, Wall Street can be fickle. The market is concerned that a Clinton landslide would give the Democrats too much of a license to tax and spend. Such a mandate could send stocks into a downward tailspin. On the other hand, bond market inflationary fears may be overblown. With unemployment high , and factory capacity low, sharp increases in wages and prices are unlikely.