What Will A Capitol Hill Shift In Power Mean for Business
Tuesday, October 31, 2006SUSIE GHARIB: Midterm elections are now just a week away, and polls suggest the Democrats have a good shot of winning one of the houses of Congress. Such a victory would create a division of power in Washington, one that has not existed for four years. But what would a shift in leadership on Capitol Hill mean for Wall Street? Suzanne Pratt reports.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: It is widely assumed on Wall Street that Democrats will take the House next Tuesday, and Republicans will retain the Senate. With President Bush in the White House, such a scenario has all the makings of political gridlock.
While some market pros expect that outcome to have little effect on stocks, conventional Wall Street wisdom says a divided government is good for the stock market. After all, political paralysis in Washington suggests no new legislation enacted, less new spending, and, as a result, more money in consumers' wallets. It is good for the economy and good for Wall Street.
ROD SMYTH, CHIEF INVESTMENT STRATEGIST, WACHOVIA SECURITIES: Generally the view is that when the government spends money, it tends not to be as efficient in doing so. And so if the government spends less, that means there is more opportunity for the private sector to spend more.
PRATT: According to Standard & Poor's, since 1945 there have been six periods when Washington has gone from political harmony to political gridlock. In November and December of those election years, the S&P 500 has gained an average of 4.8 percent. It seems, however, that full Democratic takeover might be too unnerving for the stock market. Some experts believe investors would run for the exits as they process what the loss of GOP congressional dominance would mean for Wall Street.
JOSEPH QUINLAN, CHIEF MARKET STRATEGIST, BANK OF AMERICA: Because the market is not expecting the Democrats to take both the House and Senate, we could see an initial sell-off. But then we will get back, I think it will be short term because the markets will come to realize that this is -- there is still gridlock. It does, however, set up for more uncertainty as you approach 2008.
GHARIB: Others, however, say no matter which party is victorious next Tuesday, history shows the future of the stock market will be dictated by the future of the economy.
AL GOLDMAN, CHIEF MARKET STRATEGIST, A.G. EDWARDS: The whole big deal comes down to this: On November the 8th, the economy will look no different than it looked on November the 7th. And that will be the guiding light for the market, what the economic outlook is for 2007.
PRATT: Most experts acknowledge the midterm elections have not yet been a big focus on Wall Street. Many market pros say politics are important to investors, just not as important as the economy, inflation, and the Fed.
Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
