Good, bad news on election

Personal Finance

October 31, 2006|By Eileen Ambrose | Eileen Ambrose,Sun Columnist

Say conventional wisdom is right and the Democrats capture control of at least the House of Representatives in next week's election.

Should investors care?

Experts say the impact on the overall stock market will be minimal. Midterm races just don't move the market like a presidential election. Even if Democrats gain control of both chambers, their margins likely would be too slim to push through an aggressive agenda. And there's still a Republican in the White House who can wield a veto.

Nevertheless, a shift in power in Congress could affect certain sectors. And for investors in those sectors, that could be good or bad news.

Here are some potential winners and losers if Democrats regain control of at least one chamber:

Pharmaceutical and health care companies beware. Democrats "will put more price controls on," said Chuck Carlson, chief executive officer of Horizon Investment Services. Democrats, for instance, favor allowing the federal government to negotiate drug prices in the Medicare prescription drug plan.

Restaurants and retailers in states that follow the federal minimum wage could be in for bad news.

Democrats promise to quickly move on a vote to raise the minimum wage from $5.15 to $7.25 per hour if they win control of the House. And it likely would become law. "The votes are there in the Senate," said Andy Laperriere, managing director of the International Strategy & Investment.

This would be good news, though, for millions of minimum wage workers who haven't had a pay raise since 1997.

Wal-Mart. It could become the new tobacco, according to an International Strategy report on the election. Expect congressional hearings, subpoenas of internal corporate documents and pressure to allow workers to unionize. The bad press might turn off customers and spook investors, the group said.

Life insurers would benefit because Democrats and Republicans likely won't reach agreement to kill off the estate tax, Laperriere said. That means consumers will continue to buy policies to cover estate taxes.

Mortgage finance lenders Fannie Mae and Freddie Mac would benefit. Republicans have wanted to rein them in, but Democrats in control would reduce that threat, experts say.

But mortgage lenders offering option ARMs and other nontraditional loans could face more regulation if the housing market seriously stumbles. Consumers losing their homes or forced to sell at a loss would blame the lenders, International Strategies said. And Democrats would be more likely to crack down on lenders.

Alternative energy companies would benefit from the Democrats' attempt to limit climate change, according to International Strategies. Coal companies and coal-burning utilities would be hurt.

Of course, the real market moves will likely come during the 2008 presidential election. No incumbent will be running. And it will be harder for Congress to postpone dealing with big issues such as the expiration of tax cuts and the solvency of Social Security and Medicare.

Questions? Comments? Write personal.finance@baltsun.com.

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