With Vermont Sen. James Jeffords expected to announce Thursday that he is leaving the

Republican Party

,

George Bush's

legislative agenda has suffered a major blow. And it's forcing investors who had hoped the president would have his way in

Congress

to do some serious rethinking.

Jeffords' breaking ranks with the GOP would end the 50-50 split in the

Senate

, giving operational control to the

Democrats

. South Dakota's Tom Daschle would replace Mississippi Senator Trent Lott as majority leader. Democrats also would gain control of the chairmanships of all committees, with the probable exception of the Committee on Environment and Public Works, which would be led by the now independent Jeffords. The shifts would effectively give Democrats control of the Senate agenda, allowing them to put up pretty serious roadblocks to legislation they don't favor.

"With Democrats in control of what gets on the floor and what doesn't, Bush is going to have a much tougher time," says Greg Valliere, managing director of

Charles Schwab's

Washington research group. "It certainly delays the energy package -- and you can pretty much write off the Arctic National Wildlife Refuge getting opened up."

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That curtails prospects for energy exploration companies. Wednesday, the

Philadelphia Oil Service Sector Index

, which has been on something of a tear lately, fell 3.7% as investors bet that companies like

Baker Hughes

(BHI)

and

Schlumberger

(SLB) - Get Report

are going to get a little less drilling business.

Yet while the drillers may be the sector that most immediately leaps to mind as being affected by the switch in the Senate (in part because of Bush's and

Dick Cheney's

obvious ties to the industry), it's not the only one.

On the energy front, a key part of the Bush plan is the rapid construction of new power plants -- the country needs more than one new one on line every week for the next 20 years, according to the White House. To help facilitate that, the president has proposed making the

Environmental Protection Agency's

procedures for approving the expansion of power plants, particularly those that burn coal, less stringent. Conservationists have been vehemently decrying the plan, and they likely would find a receptive ear in a Democrat-controlled Senate.

Meanwhile, with Massachusetts Sen. Ted Kennedy likely to take over the reins of the Senate Health Committee, drug companies could run into a bit of difficulty.

"If Jeffords does switch over, the pharmaceutical sector is probably the most troubled," says

Lehman Brothers

political strategist Kim Wallace. The Medicare prescription drug benefit will get debated more heavily, he says, and the ongoing investigations into price gouging by pharmaceutical companies, and into whether they colluded with generic drug makers, may become a hot-button topic.

There are some stocks, however, that likely would benefit from the Senate switch. Wallace notes that, with a greener Senate, companies focusing on alternative energy sources may see their recent run continue. And more specifically, mortgage finance giants

Fannie Mae

(FNM)

and

Freddie Mac

(FRE)

have brighter outlooks.

Currently, the Senate Banking Committee is headed by Texas Sen. Phil Gramm, who has been mulling tougher legislation of Fannie and Freddie. Maryland Sen. Paul Sarbanes, who would take over the Banking Committee, is much softer on the two.

None of this was lost on investors, who Wednesday sent Fannie 4.5% higher, and Freddie up 4.4%.