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 Republican Senate candidates picked up formerly Democratic seats in
Iowa, North Carolina, Montana, Colorado, West Virginia, South Dakota
and Arkansas, more than the six gains needed for a majority in that
chamber.
With Republican control of both houses of Congress and a Democrat in
the White House, political analysts expect more of the gridlock that
has characterized most of the six years of President Barack Obama's
tenure.
"There aren't too many surprises here, and I don't think markets
will react negatively or positively on this," said Brian Jacobsen,
chief portfolio strategist at Wells Fargo Funds Management in
Menomonee Falls, Wisconsin.
The initial reaction on Wall Street was positive, with U.S. stock
index futures pointing gains of about 0.4 percent on the day.
The rise in futures comes on relief that the results were clear,
with the Senate majority party not in doubt. Investors had been
concerned that some close races would be forced into run-offs, an
outcome that could have delayed knowing who would control Congress's
upper chamber for weeks.
Investors with a stake in the energy sector, the sole industry group
in the S&P 500 with negative year-to-date returns, hope Republican
control of the Senate will speed up approval of oil and gas
pipelines, reform crude and natural gas export laws, and motivate
the Obama administration to include those energy exports in new, or
broader, trade agreements.
Many voters are giddy about gasoline prices under $3 a gallon, but
still no party wants to be in charge of lifting an oil export ban
that could result in gasoline prices rising again. So politicians
have room to maneuver around the issue, opening the possibility for
a spike in volatility in that sector.
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It is also possible that an emboldened Republican Party will attempt
to force budget cuts and consider another battle over the debt
ceiling in 2015, which could sap market confidence. Equity markets
have been damaged in the recent past by such battles - most notably
in 2011, when a budget fight led to the first-ever downgrade of the
U.S. credit rating.
"Republicans who want to make a run for control of the executive
branch in 2016 will likely strike a tone of compromise," said
Jacobsen, but "those on the fringe will likely look to turn the
showdown into a shutdown."
Other issues that may also find traction under Republicans include a
potential repeal of the medical-device tax that is part of the
Affordable Care Act, which could be a positive for the healthcare
technology sector. Republicans could also try to slow adoption of
online gaming, which could boost casino stocks.
History shows a bullish bias in stocks after midterm elections.
Since 1928, the S&P 500 has posted a median return of 7 percent in
the 90 days after a midterm, with returns positive 86 percent of the
time, according to Barclays.
(Additional reporting by Ryan Vlastelica; Editing by Steve Orlofsky
and Toby Chopra)
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