After the mid-term elections in which the balance of power in both the House of Representatives and the Senate shifted to Democrats, IA had to know: How could this change affect the economic picture? On the morning after the November 7 election, Liz Ann Sonders, chief investment strategist at Charles Schwab, who was in Washington, DC, for the Schwab Impact conference, sat down with IA Staff Editor Kate McBride and talked about the election, the rest of 2006, and her outlook for 2007.
What does the Democratic majority mean for advisors and their clients?
I don’t think it means a heck of a lot; I think it will be a lot of rhetoric now that may cause some issues with the market, particularly at the sector level. There will be a lot of hearings, so there’s some uncertainty, but as far as actual policy change, I think that will be limited, certainly in the Senate by virtue of a tie or pretty close to it, and even though in the House the Democrats picked up a pretty decent majority, Bush still does possess the veto pen. But in the early stages of this, given the hearings that are likely and a lot of the commentary, whether it’s prescription drugs or minimum wage, could cause some ripples in the market.
Was part of this outcome discounted already?
The outcome in the House was absolutely discounted. I don’t think the market’s rally had much to do with politics. The work I have done suggested this rally has been a function of short covering by hedge funds that just could not stand the pain of being short anymore. The biggest 10 days or so of the rally that defined the vast majority of the move were all big short covering days, so I actually have not tied much of the market’s movements to the election at all.
Nancy Pelosi will be Speaker of the House, with an agenda including stem cell research, raising the minimum wage, transitioning in Iraq, and a look at middle class taxes. How do you think these things will affect the economy?