Account Information

  • My Account

    Manage all your subscriptions, update your address, email preferences and change your password.

  • Help Center

    Get answers to common service questions, ask the analyst or contact our customer service department.

  • My Stock Talk Profile

    Update your stock talk name and/or picture.



Close

Advisor Roundtable: The Republicans are Coming!

By Jim Fink on October 22, 2010

Print Friendly

According to University of Virginia professor Larry Sabato’s Crystal Ball website, the Republicans are projected to win 47 seats in the House – more than enough to take control – and 8 or 9 seats in the Senate which would have them fall just short in the senior chamber. According to the Intrade electronic marketplace (where people bet real money on the outcome of political events), Republicans have an 89% chance of taking control of the House but only a 17% chance of taking control of the Senate.

Based on the strong possibility that these predictions come true, I thought it worth asking KCI’s investment experts their opinion on the following question: 

What does Republican control of the House of Representatives mean for the stock market?

One thing is for sure: none of KCI’s money mavens will be sad to see Democratic hegemony on Capital Hill end.  In fact, virtually everyone views Congressional gridlock as a good thing. As to which industry sectors and which stock markets – domestic or foreign – are poised to do better after the election, read on:

Roger Conrad — Utility Forecaster, Canadian Edge, MLP Profits, Big Yield Hunting

The market has already priced in a Republican victory to some extent. Mainly, it would ensure there will be no more major Obama administration initiatives. That means considerably less uncertainty for business than we’ve seen the last two years and that’s partly why stocks have rallied since late summer.

On the other hand, all that seems to unite the Republican candidates is the conviction that Obama is doing a bad job and that we need to balance the federal budget without raising taxes. I think we’re going to have to wait until November 3rd to see if there’s any kind of working majority in Washington and that means any major policy initiatives are probably going to have to come from the Federal Reserve.

The real challenge for investors in any election, however, is on the micro level (i.e. how individual industries are impacted). One good example of a beneficiary of a Republican win is telecommunications, as it will be impossible for the Federal Communications Commission to impose major new regulations as the 3-2 Democrat majority now seems to want to.

Yiannis Mostrous — Silk Road Investor, Global ETF Profits, Stocks on the Run

The current political and social climate is similar to what we saw in 1994, when Republicans rode a wave of dissatisfaction in the electorate to win 52 seats in the House of Representatives and nine in the Senate. Then, as today, the president’s approval rating had fallen and Congress was deeply unpopular with the public. The result was a congressional changing of the guard and a robust stock market.

A strong showing by the Republicans in the upcoming midterm election should allow George W. Bush’s tax cuts to remain in place, giving stocks one more reason to rally. Consequently, investors will feel more confident that the U.S. economy will avoid a “double dip” recession, something that has been my expectation for some time.

In a global economy that continues to grow, the U.S. export sector will benefit from emerging markets as those economies offer strong growth which is what companies need in order to perform well.

U.S.-based investors should consider allocating more funds to emerging markets, paying special attention to opportunities in Asia ex-Japan. The region remains undervalued relative to global markets, but it won’t be overlooked for long given its strong fundamentals.

David DittmanCanadian Edge, Big Yield Hunting

Republican control of the House of Representatives is already priced into the market. The wildcard is the Senate; should the GOP wrest control of the “world’s greatest deliberative body” from the Democrats we may see a bounce driven by new hope for an extension of the Bush tax cuts that’s more favorable to investors.

The S&P 500 has been on a steady climb since July 1st — tacking on 16 percent — when it became clear that President Obama, Speaker of the House Pelosi and Senate Majority Leader Reid had blown their opportunity to transform American society with a bold response to the Great Recession. Many Americans, including many Democrats, concluded that the Democratic leadership in Washington was simply offering “more of the same.” If I remember correctly, that’s not what people thought they were voting for back in November 2008.

Here’s a little anecdote, though, that may serve a warning to some, a beacon to others. The last great bull market began on a Friday in August — Friday the 13th, in fact. There was a recession on, and the mood of the country was bad. Amid high unemployment and the threat of inflation, the out-of-power party picked up 26 House seats and looked forward to the end of a one-term presidency two years down the road, a failure marked by disastrous economic policies. The S&P 500 posted the best pre-midterm run ever — a 34 percent surge from Thursday, Aug. 12th until Tuesday, Nov. 2nd (Election Day).

It was 1982. The president was Ronald Reagan. I’m sure we’re all anxious to see how the rest of the 2010 midterm story plays out.

Benjamin Shepherd – Global ETF Profits, Louis Rukeyser’s Mutual Funds

While voters generally bemoan the “gridlock in Washington,” given the worries our Founding Fathers had over the tyranny of the majority, I believe gridlock is basically how they envisioned the system working. When no single party has total control over the legislative process, all sides have to take much more nuanced views of the issues to get anything accomplished.

Uncertainty is the thing that the markets hate most and once the anticipated shifts in the Congress occur, this uncertainty will have been eliminated. Divided government will encourage a much more deliberative process and ensure that neither party can wrest total control of the agenda and make radical changes to economic policies and regulations currently in place.

Assuming that Republicans take control of the House, I expect the markets to do well in the fourth quarter and into next year on the expectation that the lame-duck 111th Congress won’t accomplish much before it ends in January and that the 112th Congress will prove much less drastic in its policy initiatives that its predecessor. I would say now is an excellent time to add some exposure to the U.S. equity market if you’re one of those investors who has been hiding in bonds and foreign markets.

Jim Fink – InvestingDaily.com

The Republican Party’s likely victory in November is a direct result of the American people’s realization that President Obama is an extreme left-wing ideologue who is anti-business and too weak to stop terrorist Iran from getting a nuclear bomb. Unfortunately, even after the mid-term elections, Obama will have presidential veto power which will probably prevent the Republicans from repealing the disastrous healthcare reform legislation. Evidence is piling up that Obamacare is causing health insurance rates to skyrocket and will soon push the national budget deficit further into the red.

The good news is that Republican control of the House will severely impede Obama’s radical legislative agenda from imposing any further damage to the U.S. economy. I say impede rather than stop because Obama’s secret weapon remains the regulatory agencies. Kathleen Sebelius at Health & Human Services will still be empowered to threaten health insurers, Elizabeth Warren is just getting started causing mischief over at the newly-created Consumer Financial Protection Bureau, and EPA administrator Lisa Jackson is aiming to regulate carbon emissions.

Still, extension of the Bush tax cuts is likely, which will prevent a further drag on the economy. But a tax extension doesn’t constitute new economic stimulus. Furthermore, Congress will probably wait until late December to extend the tax cuts, which will prolong investor uncertainty and leads me to believe that the stock market will tread water at best after the election for the remaining two months of the year.

The Federal Reserve appears primed to engage in a second round of asset purchases (Quantitative Easing Part 2), but it will probably be gradual and not have the “shock and awe” effect of Part 1. Furthermore, the 10-year U.S. Treasury Note is already trading at a super-low interest rate of 2.55%, and 30-year home mortgage rates are also a rock-bottom 4.2%, so I don’t see much benefit to a QE2 program that drops rates another 20 basis points.

Bottom line: the election will create legislative gridlock which normally is good, but in this case we have regulatory agencies running amok and a radical healthcare reform law that needs repeal — gridlock won’t solve either of those problems. Our only hope is that the election chastens Obama, causing him to reasess and shift his policy focus more to the center. Bill Clinton did that in 1994, but he was a pragmatist. I don’t have confidence that an ideologue like Obama has the ability to compromise with Republicans. If he doesn’t, not only will the U.S. economy suffer, but Obama will be a one-term president.

===============================================================================

KCI Investing has an incredible collection of top-notch investment minds covering all aspects of the stock, bond, international, and ETF marketplaces. Whether you are interested in growth, energy, utility income, Canadian income trusts, super-high dividend yields, emerging markets, ETFs, master limited partnerships, or short-term trading opportunities, KCI has an investment expert and service ready to help guide you towards wealth accumulation and financial independence.

Stock Talk — Post a comment Comment Guidelines

Our Stock Talk section is reserved for productive dialogue pertaining to the content and portfolio recommendations of this service. We reserve the right to remove any comments we feel do not benefit other readers. If you have a general investment comment not related to this article, please post to our Stock Talk page. If you have a personal question about your subscription or need technical help, please contact our customer service team. And if you have any success stories to share with our analysts, they’re always happy to hear them. Note that we may use your kind words in our promotional materials. Thank you.

You must be logged in to post to Stock Talk OR create an account.

Create a new Investing Daily account

  • Use Social Connect
  • - OR -

* Investing Daily will use any information you provide in a manner consistent with our Privacy Policy. Your email address is used for account verification and will remain private.