Markets Prepare for Congressional Shake-Up
Nov. 7, 2006 — -- Though the first official ballots in the midterm elections weren't counted until Tuesday evening, Wall Street has been counting on the outcome for weeks.
Ever since Democratic strategist James Carville coined the maxim, "It's the economy, stupid!" during the 1992 presidential election, money matters have been at the forefront of the electorate's mind when voters headed into the voting booth.
According to that thinking, the economy's recent solid performance under the watch of the Republican-controlled Senate, House and White House would seem to have suggested the Democrats were in trouble.
But it didn't play out that way.
Democrats took control of the House of Representatives and awaited word early Wednesday on Senate races in Virginia and Montana to find out if they will also take over the Senate.
This year, despite a solid economy with low unemployment and relatively good growth over the past three years, prognosticators aren't bullish on the outlook for the Republicans. The war in Iraq and a string of Republican scandals translated into a big turnout for Democratic candidates.
The smart money on Wall Street has already started moving, even before the election.
Perhaps the best place to see all this dollar-backed Wall Street pre-election "voting" is in the pharmaceuticals industry.
The Amex Pharmaceuticals Index has dropped 3.3 percent in the past seven trading days as investors bet that a Democratic House would move quickly to change the Medicare Part D drug benefit that would give government buyers the power to negotiate lower prices. That would likely erode industry profits by tens of billions of dollars in the next few years.
Experts say the profits in the utilities sector will also likely take with the Democrats' win, thanks to an increase in clean air regulation that will cut into profits at coal-fired generating plants.
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