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HAS the Contract with America been good for stocks? Yes and no, says Prudential Securities’ Charles Gabriel. Obviously, reducing the deficit by $500 billion is decidedly bullish. But the reality is that the cuts approved so far have been minuscule. House Republicans have rammed through measures that rescind $20 billion in discretionary spending for the remaining six months of the fiscal year. About $9. billion of this has already been earmarked for California disaster relief and Pentagon peacekeeping operations, leaving net savings of $11 billion.

If such a small step can trigger such a gnashing of teeth, will stock-market bulls ever get out of the pen? Definitely, says Gabriel. The 1995 spending cuts are a “gift that keeps on giving,” lowering the budget baseline for all succeeding years. In fact, the House GOP has already endorsed $190 billion in cuts, fulfilling a pledge to offset the costs of tax cuts promised in the Contract. Moreover, this $190-billion spending reduction is actually worth $280 billion when scored according to the rules that have governed budget deliberations for the last two decades and that the Clinton Administration employed in the 1996 budget. The result: we’re more than halfway to a balanced budget in 2002—much more if, as Gabriel expects, the Contract’s tax cuts are ultimately whittled down.

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HAS the Contract with America been good for stocks? Yes and no, says Prudential Securities’ Charles Gabriel. Obviously, reducing the deficit by $500 billion is decidedly bullish. But the reality is that the cuts approved so far have been minuscule. House Republicans have rammed through measures that rescind $20 billion in discretionary spending for the remaining six months of the fiscal year. About $9. billion of this has already been earmarked for California disaster relief and Pentagon peacekeeping operations, leaving net savings of $11 billion.

If such a small step can trigger such a gnashing of teeth, will stock-market bulls ever get out of the pen? Definitely, says Gabriel. The 1995 spending cuts are a “gift that keeps on giving,” lowering the budget baseline for all succeeding years. In fact, the House GOP has already endorsed $190 billion in cuts, fulfilling a pledge to offset the costs of tax cuts promised in the Contract. Moreover, this $190-billion spending reduction is actually worth $280 billion when scored according to the rules that have governed budget deliberations for the last two decades and that the Clinton Administration employed in the 1996 budget. The result: we’re more than halfway to a balanced budget in 2002—much more if, as Gabriel expects, the Contract’s tax cuts are ultimately whittled down.