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Likely Election Day Winner: Gridlock

A mixed result would be a good thing for a market that likes a do-nothing government.

This column was originally published on RealMoney on Nov. 6 at 8:13 a.m. EST. It's being republished as a bonus for readers.

The primary focus of the market this week will be politics. It is widely anticipated that the Democrats will win control of the House of Representatives, but not the Senate although it will take a few seats. The Republicans have gained a little in the most recent polls but it will truly be an upset if they hold on to the House.

The general belief on Wall Street is that the Democrats are a negative for the stock market because they tend to favor higher taxes, especially on capital gains, and also because they tend to favor restrictions on big business such as windfall profit taxes on oil companies and price controls on drug companies. There is little doubt many of the Democratic policies are not stock market friendly but does that mean the stock market is going to have a major negative reaction should they win?

Probably not.

Simply because the Democrats gain some seats and even control of the House doesn't mean they can pass anything they want. They can make more noise about their policies, and with control of Committees, they can even hold hearing on things like impeaching President Bush (as likely new Judiciary Committee head, John Conyers, has stated he favors). That might make for headlines but power is still balanced enough that the end result is nothing will happen.

Does that mean the election is a non-event for the market? To some degree probably, but there is likely to be some nervousness when it comes to the effect on certain market segments. And if the Republicans pull off a surprise, the market may even enjoy a short-term pop.

The most important thing about the election is that historically the market has done quite well in the fourth quarter once the election distraction is out of the way. It makes sense because the President's party almost always loses seats and that sets up a good change for gridlock -- and if there is one thing Wall Street loves, it is a less meddlesome government.

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We'll likely get some short-term volatility off the election this week but as long as power remains mixed, it is unlikely to have any major impact on the market. Many on Wall Street have Republican leanings so their mood will be affected in the short term and that may cause some reactions, especially tomorrow morning.

Perhaps anticipation about the election was the reason the market suffered a bit of a breadown. We pulled back mildly although steadily and dip buyers showed unusual restraint. Whether this was just some healthy consolidation or the start of something more we have yet to see, and the best test will come on a bounce like we are having this morning. I seldom trust Monday morning bounces to last and I will be watching closely for the bears to hit it with some selling.

Overseas markets are higher across the board this morning and oil is down a bit despite another statement from OPEC that it plans to cut production.

James "Rev Shark" DePorre is the founder and CEO of Shark Asset Management, an SEC-registered investment advisory firm. He also operates, an interactive online community that serves and educates active investors. DePorre holds business and law degrees from the University of Michigan, is a member of the Michigan Bar Association and a former tax attorney and CPA. He lives in Anna Maria Island, Fla., with his wife and two children.Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Rev Shark appreciates your feedback;

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