Elections 2011

What does the new Congress mean for your investments?

Maybe it's a little early to prognosticate. Investors are going to have to wait to see more specifics from the new Congressional leaders. And there's a two-month lame duck Congress to get through before the new team takes charge. We don't even know if the Bush tax cuts will be extended beyond Dec. 31 -- and, if so, for how long.


More from WSJ.com:

• What a Republican Win Would Mean for Investors

• Stocks: Are Small Investors Too Late to the Party?

• Warning: Retirement Disaster Ahead


But I'm not one to hang around. And if investors want to look ahead, they're not completely blind. We have two sets of clues: History, and the plan that the Republican leaders themselves laid out nearly two months ago, in their 48-page Pledge to America.

Neither is a perfect guide. But they may not be completely useless. What can they tell us?

THE STOCK MARKET. Unclear. Watch out for anyone who tells you "divided government is good for the stock market." The historical basis for this -- such as data since 1949 via the Stock Trader's Almanac -- is meager. You can't extrapolate universal rules from such a small amount of data. The results are too heavily skewed by the Reagan (1981-86) and Clinton (1995-2001) booms under divided governments. "The mantra that gridlock is good for the markets is not borne out by the evidence," says Bob Johnson, senior managing director at the CFA Institute, a trade organization for professional investors. A case in point: The stock market has gained 40% since the Democrats took full control in Jan. 2009.

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LARGE CAPS. Positive. Yes, the new Congress may be pro-business. But that should favor those who can pay to play. That means big companies with cash, clout and contacts. Think: Big oil, pharma, and the Wall Street banks. Large companies boomed following the "Republican Revolution" of 1994. Large companies also have other advantages for investors today. After years of underperforming small caps, many of them look reasonably priced. Those with big dividend yields should benefit from extensions of the Bush tax cuts, which favor dividend income. And large companies are most able to benefit from overseas growth and a weaker dollar (more on that below).

SMALL CAPS. Unclear. They should benefit if the Republicans follow through on plans for lighter regulations and a small business tax cut. But the biggest issue for them remains the domestic economy, still burdened by high unemployment and heavy debts. According to the Pledge, the new Congress plans to axe any remaining stimulus and cut back on discretionary spending. Will this austerity help the domestic economy in the short-term? Hardly. Look at Ireland, where the economy is in freefall. A further headwind for small cap investors: The stocks have already outperformed for a decade. The cycle may be due to turn.






.......I too think it is way too early to figure out who WON this election. With talk of a Lame Duck session and chaos amongst the ACTUAL Republican (bill voting) Party, we will just have to wait and see what happens in January.
I do say that the NEWly elected have done damaged to Ranking Dems on BIG committee's and with this causes a big PAUSE in the bill making process, I just hope the Repblicans put together complete simple bills that America Can READ and let us understand what is going on in D.C......
Because that is what I think America voted on, Complete Confussion!

To many people voted for Obama with the hopes and dreams that he would ride into the government and sprinkle his magic and be the white knight in shinning armour that we have been waited for. I have heard people compare Obama to John Wayne. Although, unfair many people have hoped that Obama would be the answer and would pull the United States out of its debt/war/health care issues/poverty and every other bad concern that faces the average American citizen. After watching people vote, and observing the outcome, it just goes to show you that when one person puts so much hope and faith in ONE PERSON (Obama) then the consequences follow the preceeding elections. How can we as a country unite (both rep/dem/other) to unify our country before we are facing a second recession. (although rumor has it that our recession has ended...hum not so sure where they get their figures on this but I guess if the statics prooves it then it HAS TO BE TRUE? RIGHT!?) This is exsactly why the United States continues to fail, they allow other people (political figures) to represent them and they do not follow through with their promises of a better future. So if you really want to make a difference then do it. Don't wait for the statistics to explain the economy, study it and make decisions that could if nothing else benefit you during this hard time.