What the experts say

A post-election boost?; Fishing for preferred stock; Reward card conundrum

A post-election boost?

“If history is a guide,” this year’s midterm congressional elections should pave the way for a market rally, said Ben Levisohn in The Wall Street Journal. Since 1945, the Dow has risen about 17 percent, on average, in the year following a non­presidential national election, “with the odds of a sell-off less than one in 10.” But past performance doesn’t necessarily assure that odds will be in investors’ favor this year. Typically, “a sitting president’s desire for re-election” has corresponded with “economy-stimulating budget deficits” during the third year of his term. Congress’ current obsession with deficit cutting suggests that “the Obama administration might not have as much power as other presidents to orchestrate a third-year economic bounce.”

Fishing for preferred stock

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For income-hungry investors, preferred stock may seem ideal because it tends to pay larger dividends than common stock, said Matt Krantz in USA Today. But share prices are just as volatile as those of ordinary stocks, and “dividends on preferred shares can be suspended at any time.” Moreover, most preferred stocks come with an added caveat: “Companies may choose to buy back all the shares in investors’ hands at a set price, known as the call price.” Buy stock for more than that price, and you’ll lose money instantly if it’s called. Fortunately, the call option price isn’t a mystery; it’s listed in the prospectus.

Reward card conundrum

A Justice Department settlement with Visa and MasterCard may make “paying with plastic a pain for shoppers,” said

AnnaMaria Andriotis in SmartMoney.com. Under the agreement, merchants can now offer discounts to shoppers who use either cash or “plain-vanilla” credit cards instead of reward cards. That helps merchants reduce “interchange fees”—usually between 1 percent and 3 percent of purchase price—that credit card companies charge them on each transaction. “The more generous the rewards attached to a card, the greater the fee” paid by merchants. Previously, merchants couldn’t offer discounts to shoppers using cards with smaller interchange fees. Now, however, shoppers using reward cards may have to calculate whether a card’s rewards outweigh a discount for not using it. “So much for the convenience of credit.”

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