Investing in a Republican World

Nov. 7 -- This year the economy, more than any other issue, was on top of the minds of most voters.

In fact, during Tuesday's election, 55 percent of voters were more concerned about candidates' views on the economy, vs. only 7 percent concerned with views on Iraq, according to The Economist.

And with Tuesday's vote to fill 435 House seats, 34 open Senate seats, and 36 governorships, legislative and fiscal policies are up for grabs. After the post-election dust settles, here is Mellody's take on what could happen to your money and the economy.

The Overall Market

Historically, when Americans think of business, they think of the Republican Party.

Traditionally, Republicans are pro-business, favoring smaller government, less spending, less regulation and lower taxes. Therefore, a Republican-controlled Congress — wherein Republicans hold the majority in both the House and the Senate — joined with a Republican administration is thought to be a potential boon for stocks.

In the first two years of the Clinton/Gore administration with a Democratic Congress, the Dow Jones Industrial Average averaged a 7.8 percent annual return. Two years later, after the Republicans regained control of Congress, the Dow averaged a 33.1 percent annual return, according to The Congress Action Newsletter.

Sectors and Stocks

Energy stocks: The Republicans are hot to pass legislation that will open the controversial Arctic National Wildlife Refuge to oil and gas exploration. Should this actually happen, energy stocks like Schlumberger, Duke Energy Corp, ExxonMobil Corp., Sunoco and ConocoPhillips could see a boost in their stock prices.

Financial services stocks: Generally speaking, Democrats are in favor of stricter corporate governance and increased regulation of the financial services, accounting and insurance industries.

However, given Republican control of Congress, financial services firms such as Goldman Sachs, Merrill Lynch and Citigroup may rebound from less draconian measures. Likewise, insurance companies like AIG, Allstate and Prudential may experience a positive bounce in their stock price because of less rigid regulations.