Securities Research Services

Wednesday, November 08, 2006

Government Gridlock Likely Priced In

Democrats took over the lower house and as of the time of this writing, have a fair chance at taking over the Senate. The election outcome was in line with the latest polling results so the outcome is likely priced in to the market. Today's early trading might see a bit of selling by those convinced that a democratic congress is going to lead to bigger government and more spending. By late morning or early afternoon this should be muted or reversed. A democratic congress provides the nation with two years of gridlock; an outcome that will most likely put a cap on the big spending that has been taking place. While the election outcome is not likely to be the catalyst which launches the market toward its next move, now that the market has one less "unknown" behind it, business as usual can now get underway. Blue chips, which led the way up, are now undergoing distribution so we may be very near a correction. How big of a correction remains to be seen. With the recession now less probable than before Friday's employment report, the long term market outlook is less bearish. This however does not mean that the market cannot return to the summer lows before it rallies back up again.

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