US stocks set to slip after elections, Pfizer down

NEW YORK, Nov 8 (Reuters) U.S. stock futures pointed to a drop on Wall Street on Wednesday, with shares of companies such as Pfizer Inc. in the spotlight, after Democrats swept Republicans from power in the U.S. House of Representatives and an undecided Senate race fueled caution.

With control of the U.S. Senate likely to hinge on a ballot recount that could take weeks, analysts said stocks could see a pullback after a strong run-up in the past two days.

Investors had bet the elections would result in gridlock within Congress rather than the wide sweep garnered by the Democrats, who must now work with a Republican-controlled White House.

Even so, hopes that underlying strength in the economy would help underpin corporate profits regardless of the Democratic win, caused stock futures to back off from their worst levels just ahead of the opening bell.

''The Senate race is a little bit of a surprise. Even though the (final results) are not in yet, the Democrats did much stronger, so the market is sort of digesting that,'' said Peter Dunay, investment strategist at Leeb Capital Management in New York.

''Given the rallies we've seen, it may not be as bad a market as market participants may initially feel. As long as the earnings picture and the economy remain as strong as they do, the market should drive off of those fundamentals. The Democrats have no plans to do anything harmful to the U.S economy.'' Still, a potential recount and possible legal challenges in Virginia could delay the final Senate result, dredging up memories of the 2000 presidential election recount that lasted five weeks.

Virginia Democrat James Webb had an 8,000-vote advantage over Republican Sen. George Allen out of more than 2 million cast. A recount could stretch into December, leaving Senate control uncertain.

S&P 500 futures were down 7.2 points, below fair value, a formula to evaluate pricing taking into account interest rates, dividends and time to expiration on the contract.

Dow Jones industrial average futures dropped 43 points and Nasdaq 100 futures fell 13.75 points.

Analysts said sectors likely to be under pressure from a Democratic sweep include defense, tobacco, major pharmaceutical, oil companies and discount retailers.

Shares of Pfizer Inc., a Dow component, fell more than 2 percent to .70 before the bell in electronic trading, while Merck&Co dropped 2 percent to . Shares of discounter Wal-Mart Stores Inc., another Dow constituent, fell 1.3 percent to .05.

On the other hand, a Democratic majority in either house of Congress would likely derail legislation aimed at reining in mortgage finance companies Fannie Mae and Freddie Mac, which Democrats see as crucial in making home homeownership affordable.

A Democratic victory is also seen as positive for alternative energy producers such as VeraSun Energy Corp., generic drug makers such as Barr Pharmaceuticals Inc. and stem cell research companies.

U.S. stocks had rallied for two days before the election, with the Dow Jones industrial average on Tuesday reaching an all-time high of 12,196.32 and the Nasdaq Composite rising as high as 2,391.34, its highest since February 2001.

REUTERS DKS RAI1945