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Stock Market Posts Gains After Bush Victory

The U.S. stock market closed up on Wednesday following the re-election of President George W. Bush, but economic analysts are offering mixed predictions about the U.S. economy in the coming four years.

The Dow Jones Industrials rose 101 points to finish at 10,137, up one percent. The broader S&P 500 climbed 13 points and the technology-heavy NASDAQ index gained 20 points.

But Thomas Galvin, chief investment officer with U.S. Trust, cautions that this so-called "relief rally" may be short-lived.

"I do believe the leading indicators suggest maybe somewhat softer growth," he said. "So I think the market is going to be able to take these rallies and move them a bit further, but I don't think we are at the beginning of a major breakout."

Meanwhile, many economists are speculating on what another Bush term will mean for the U.S. economy.

Some analysts expect equities to become a more attractive investment, because President Bush's tax cuts have reduced the capital gains tax for investors. Other observers are concerned about the growing U.S. deficit, which currently stands at a record $413 billion for the 2004 fiscal year.

The head economist at Goldman Sachs investment banking firm, Bill Dudley, says President Bush's tax policy will lead to increasing budgetary debt.

"I think, in general, the fiscal outlook is one for budget deficits as far as the eye can see," he added. "Because basically, if you assume that President Bush is successful in making his tax cuts permanent, if you assume they fix the alternative minimum tax and you assume that spending grows at some reasonable rate relative to history, you're looking at in our view, a $5.5 trillion cumulative deficit over the next 10 years. I think the idea that President Bush will be successful in halving the deficit over the next five years is extraordinarily unrealistic."

Undercutting the stock market gains, oil prices surged more than $1 higher Wednesday. A former governor of the U.S Central Bank, Larry Meyer, believes the oil hike is probably temporary, and says he is optimistic about the economy over the coming year.

"I think if oil prices begin to decline some as I expect will happen, with a relatively low profile of rising rates for the next several months, then we'll see growth move to above trend growth and have a pretty good looking economy in the last three quarters of next year," said Mr. Meyer.

Some analysts expect that the pharmaceutical, defense and energy industries will profit from a second Bush term, while industries such as metals, manufacturing and alternative energies will not.