Which Stocks Could Win, Lose in Election

Then there is Iraq, which has become a foreign-policy Hurricane Katrina. Importantly, the Republicans' attempt to make Iraq only part of the terrorist issue has failed. In the six previous wartime elections, the incumbent party has lost power. The YouTube election of 2006 will be no different.

Other influences that will likely put the GOP on the defensive include the lack of progress toward energy independence, the Katrina fiasco, border insecurity and even the uncontrollable fires in the West.

A Democratic House win is nearly a foregone conclusion, with between 20 and 25 net seat adds likely. (It needs 15 net wins.) However, the potential for a Democratic "tsunami" exists in which the Democrats could pick up more than 35 net seats.

The Senate race looks closer. The Democrats need to take six additional seats, but I think they'll squeak by and gain control of the Senate with a one-vote majority. Look for key Democratic wins in Pennsylvania, Rhode Island, Ohio, Montana, Virginia and Missouri and key Republican wins in Arizona and Tennessee. Connecticut will go to Joe Lieberman, who caucuses with Democrats despite the previous election. A sweep in the House and Senate is my baseline outcome for tomorrow night.

Stock Market Ramifications

Arguably, an elevated equity market appears to be underpricing several of the aforementioned emerging political developments and themes. Therefore, it's vulnerable to the perception of new anti-business legislative initiatives that are likely subsequent to a Democratic win.