This means that the president's chances of pushing through another hotly contested topic on the legislative agenda, financial reform, are reduced. The financial sector will benefit from Congress's decision on health care and ETFs like Financials SPDR (XLF) and iShares Dow Jones U.S. Financial Sector Index ETF (IYF), with a large stake in big financial firms such as Goldman Sachs (GS), Bank of America (BAC), J.P. Morgan (JPM) or Citigroup (C), could see a boost.
However, this will be a trend that will materialize in the mid- to long-term.
In the short run, the market will interpret the passage of the health care bill as a sign that Obama's political maneuvering powers are in their prime and that he will be able to ram his favored legislation through before mid-term elections. In this case, XLF, and IYF will face downward pressure. The regional bank ETFs will do better because they are not a target of reform.
But as November draws closer, if financial reform is not well on its way to being passed, I expect that the big financials will begin to outperform as the market starts to take into account a Republican victory in the mid-term elections.-- Written by Don Dion in Williamstown, Mass.
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