Updated from 5:54 a.m. EST
Republicans flipped conventional mid-term wisdom on its head, scoring a resounding victory in mid-term elections and putting the Grand Old Party in control of the Senate, House of Representatives and White House for the first time since 1954.
The party in the White House usually loses seats in a mid-term election -- especially when the economy turns sour. This year, thanks in part of the popularity of the incumbent president, an energized GOP managed both to wrest control of the Senate from Democrats and add to their majority in the House.
As of 6:55 a.m. today, Republicans had a 51-46 majority in the Senate, with one independent and two races undecided. In the House, Republicans extended their advantage: The GOP now holds a 226-203 majority (one independent), with five races undecided -- up from the 223-211-1 majority it held before. An additional Senate race in Louisiana won't be decided until next month's run-off election, but the results won't affect Republican control of the chamber. While Democrats made some gains in governor's races, the GOP held a 26-19 lead in governor posts with five races undecided.
The stunning victory is a testament to the powerful coattails of President Bush, who launched an 11th-hour charm offensive with campaign stops in over a dozen states in the past week. While the official final vote tally awaits, the strong Republican showing underscores broad support for the President and his agenda.
The results left Republicans emboldened to forward Bush's military and economic agenda, Democrats demoralized and Wall Street geared up to rally this morning on news of a gridlock-free, GOP-dominated Washington.
In the wake of a GOP win of both Houses, the market will anticipate "a sexier stimulus package with more tax cuts, and a block on the regulatory agenda here in Washington," says Chuck Gabriel, senior Washington analyst for Prudential Securities. Helping matters on the regulatory front, embattled SEC Chairman Harvey Pitt announced last night that he is stepping down -- robbing Democrats of a post-election target for attacks on weak oversight.
"The real investment story is that the president, with polling
approval numbers near 70%, has a lot of political capital to spend," says Gabriel.
With Republicans in charge of both Houses, analysts have predicted the party will try to make permanent the tax cuts it enacted through last year, while pushing through tort reform, terrorism insurance and homeland security legislation, a possible increasein spending on a national missile defense system, and a reduction in the capital gains tax. (Click
here for a TSC story onwhat the market seeks from a Republican Congress).
But there's another, more sweeping GOP agenda that could gain momentum. Following a resounding endorsement from U.S. voters, Gabriel predicts thepresident will accelerate the push for military action in Iraq. If that comes to pass, it's tough to say how the market would react in the coming months, as investors suss out the prospects for a successful campaign.
On both sides of the aisle, strategists agree the election season pointed up GOP strength on national-security matters. "Republicans were helped by being able to push all the corporate accountability
concerns off the front pages with Iraq stuff," says Chris Marshall, a senior analyst at the Mellman Group, a Democratic polling firm.
With his prestige bolstered amid debates over potential U.S. military action, President Bush has lately basked in broad public support. At this point in his tenure, he can boast of the highest approval rating of any President in modern history, going back decades, Gabriel notes.
Even some Democrats sought to steal a little of that halo effect leading up to elections. A few Democratic Senate candidates in conservative states ran campaign ads suggesting links with the President, according to Robert Moran, vice president at Fabrizio, McLaughlin & Associates, a GOP polling firm. "In Georgia and South Dakota and Louisiana, the Dems ran ads basically saying they were George Bush Dems,saying, 'Hey, I'm on Bush's side on tax cuts and defense,' " he says.
Certainly, Dems took flak for failing to offer up a coherent slate of their own ideas for governing. The party had been expected to wring political gains out of the ailing economy, but that effort
proved a flop. Likewise, pledges to protect Social Security failed to resonate with voters, though similar messages have helped Dems in the past.
Coverage of debate over a war in Iraq and the pursuit of the Washington, D.C. sniper drowned out Democrats' campaign messages, Moran suggests. "There was never a lot of time for Democrats to coalesce around a message. That said," he adds, "I don't know what it was."
From the Democrats' camp, Marshall says there simply weren't many over-arching political themes that emerged in the election season. "This is not a nationalized election; there's not really a national trend you can point to," said Marshall in a phone interview early Tuesday evening. "There are just individual races and individual states and districts."
But in retrospect, the lack of a concerted Democratic message allowed Republicans to capitalize on the personal appeal of the President. Now Democrats must endure the consequences from the legislative backbench.
Speaking before East Coast polls closed Tuesday, Marshall said, "If we lost the Senate, it would be a huge deal.
The Republicans would take over the chairmanship of all the committees. There are all sorts of procedural advantages that accrue that might marginally help them pass legislation."
The Dems' only consolation: in the election, Republicans didn't garner the 60-person majority in the Senate that would be necessary to shut off a filibuster.
Short of a big majority, Republicans will hardly enjoy free rein in the Senate, Moran says. But grabbing control of the upper House marks a tremendous strategic victory, nonetheless, since the GOP will now set the legislative agenda. "My take on this is, it's not so much what Republicans can do," he says. "It's what the other side can't do."