Economics and earnings may briefly take a back seat to politics in the coming week as Americans head to the polls Tuesday.
"It's all about the election," says Paul Mendelsohn, chief investment officer at Windham Financial. "Wall Street is anxiously waiting to see if the Democrats can retake control over all or part of Congress."
Recent polls suggest the Democrats could find themselves with a majority in both houses Wednesday morning for the first time in 12 years, though they have much ground to make up. A strong Democratic showing, says Mendelsohn, could make for a volatile trading session on Wednesday, as traders readjust their positions in the face of a new political reality. Some observers say defense and healthcare plays could be particularly vulnerable to selling should Congress change hands.
But others downplay the importance of Tuesday's outcome, citing Republican control of the White House."The benefits -- or negatives -- of a Dem-controlled legislature would not be felt until 2009, with President Bush still in charge of the executive branch," says Randy Diamond, sales trader at Miller Tabak. "And only then if they win the presidency as well." He forecasts "little reaction" if the Republicans maintain control. The bulk of earnings season may be over, but a host of heavy-hitting companies will be stepping up to the plate anyway.