Wall Street No Longer Likes Congressional Gridlock

Conventional wisdom holds that Wall Street likes the stability produced by partisan gridlock in Congress. That's not true anymore.

Wall Street now wants Republicans, with a presumably pro-corporate and antiregulation agenda, to emerge from the midterm elections with majorities in both the Senate and House of Representatives.

"We would view a Republican-controlled government as positive ... as we believe it will partially mitigate and deflect the calls for increased bureaucratic intrusion into the capitalist system," said Kent Engelke, capital markets strategist at Anderson & Strudwick in Richmond, Va.

Most on Wall Street would agree, although a Republican sweep also could mean expanding budget deficits due to a combination of lower taxes and increased spending.

"I think you're at a point now where important legislation that could help the economy is now hopelessly tied up," said Greg Valliere, managing director of Charles Schwab's Washington research group. "I think that the biggest plus, if one party controlled both houses, is to break this paralysis."

Street-Friendly Goals

Washington watchers can point to a number of Street-friendly policy goals of the Bush administration, which a Republican Congress would very likely support. And they say Democrats have failed to offer a similarly comprehensive program. Among what the Street wishes for from a Republican-controlled government are the following:

An end to gridlock: Passing a budget amendment, as well as bills on homeland security, terrorism insurance and energy, are seen as key.

Tax cuts: The Bush tax cuts, now set to expire in 2010, will be made permanent. Tax cuts for small business and a faster depreciation schedule for corporations also could get consideration.

Shareholder-friendly initiatives: Increasing the deduction for capital losses from the current $3,000 level and ending the double taxation of dividends are expected proposals, as well as the elimination of the alternative minimum tax.

Tort reform: Capping jury awards would do wonders for companies with potential asbestos liabilities, as well as tobacco manufacturers.

Prescription drugs: Both parties want Medicare reform, but Republicans are likely to limit cost controls on prescription drugs, a concern of big pharmaceuticals.