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November 11th, 2014, 8:25 am | By trader | Published in LUNCH IS FOR WIMPS | Comments on this postComments Off

Whilst the republican Party will not be assuming its Senate Majority until January of next year, U.S. stock investors are now betting the new congressional makeup which could lead to a quicker action on pipelines and trade agreements which sent energy shares skyrocketing last week.

Wall Street was able to rise broadly in its first session following midterm elections, yet energy and medical device companies (two sectors that effect a more direct impact from legislative measures) had been outsized in their moves.

Part of the broader market’s move was based on relief that the Senate majority was not in hesitation; investors had been concerned in some close races which forced into run-offs, an outcome that could have delayed knowing who would control Congress’s upper chamber in the coming weeks.

It appeared like some of the races would be very close and that there is an apparent control of the Senate. Still in the end, the results were more or less decisive. The good news for the industries is that the same was subject to regulatory issues.

The S&P Energy sector went up 1.5 % on optimism that the Republican control of the Senate will result in reforms in crude and natural gas export laws which motivated the Obama administration to include those energy exports in new or broader, trade agreements.

TransCanada Corp had one of the largest election-related bounces, extending 2.4 % to $49.51 on the New York Stock Exchange. The keystone XL pipeline project could find its way with an easier approval with a Republican-led Senate.

The jump in energy was in part sparked by its recent weakness. The group is the only existing industry in the S&P 500 with a negative year-to-date returns, which was pressured by a massive drop in the price of crude oil.

Similar issues may also find traction under Republicans including a possible repeal of the medical-device tax which included in the ‘Affordable Care Act’, which could benefit the healthcare technology sector.

Medtronic Inc. was able to add 1.3 % to $68.87 whereas medical device maker Stryker rose 0.3 % to $87.91, roughly in line with the broader market.

On the downside, casino stocks were sharply weaker and MGM Resorts sank 3.8 % to 21.48, while Las Vegas Sands was down 2.7 % at 58.07 %. A certain few predicted that Republicans might try to slow adoption of online gaming which was seen as augmenting the group.

With the Republicans in control of both houses of Congress and a Democrat in the White House, political experts anticipate a stalemate which can be characterised as most of the six years of President Obama’s tenure.

Republicans also were able to bolster their hold on the U.S. House of Representatives and when the new Congress to take place over January, Republicans will be in charge of both upper and lower chambers for the first time since 2006.

Although the Republicans basically don’t have a large enough majority in either the House of Senate to supersede a veto or filibuster, it is quite possible an emboldened party will endeavour in forcing budget cuts and consider yet another battle over the debt ceiling expected next year.

Such actions could drain market confidence, as occurred in recent such battles, most notably back in 2011, when a budget fight resulted to the first-ever downgrade of the U.S. credit training.

Republicans who are actively seeking a run for control of the executive department by 2016 will likely to beat a tone of compromise, but those on the fringe will more likely be looking to turn the showdown into a shutdown.

According to Barclays, history reveals a bullish partiality in terms of stocks following the midterm elections. Since 1928, the S&P 500 has posted a median return of 7 % in the past 90 days following a midterm, with returns having positive 86 % at a given time.

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