Marketplace Report: Wall Street's Gridlock Grin An opposing party in power could result in a gridlocked Congress -- and that's good for businesses hoping to dodge complicated legislation and regulation.
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Marketplace Report: Wall Street's Gridlock Grin

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Marketplace Report: Wall Street's Gridlock Grin

Marketplace Report: Wall Street's Gridlock Grin

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MADELEINE BRAND, host:

Back now with DAY TO DAY. I'm Madeleine Brand. Many political analysts have said that after today's election, the Democrats may take control of the House, and the Republicans may keep control of the Senate. If that happens, that could mean legislative gridlock. For some on Wall Street, though, gridlock isn't such a bad thing. MARKETPLACE's Janet Babin is here. And Janet, when there's a do-nothing Congress, how can investors benefit?

JANET BABIN: Well, Madeleine, you've heard the saying no news is good news, I'm sure. And that really is why some investors do favor gridlock. Because if the executive branch is battling with the legislative branch, or if the House is fighting with the Senate, chances are no radical bills are going to get passed, and there would be no major regulatory changes that could upset the status quo.

But not every economist thinks alike on this. Sam Stovall is with Standard and Poor's Equity Research. He says historically, total unity in Washington works best for the market. Next best, he says, would be total gridlock: a unified Congress against the president. But partial gridlock - when you have one party controlling the House, one controlling the Senate - historically, that means a weaker stock market. I asked him why.

Mr. SAM STOVALL (Standard & Poor's Equity Research): Both houses of Congress are fighting with one another, and so maybe Wall Street really can't project what is likely to come out of Congress. So, as a result, Wall Street - which usually abhors uncertainty - is constantly in a state of uncertainty.

BABIN: So if the Democrats win just the House, Stovall says all bets are off.

BRAND: And Janet, which sector of the market could benefit the most from partial or even total gridlock?

BABIN: Right. Madeleine, that would be the bond market, according to analysts. And earlier today, we did see a bit of a bond rally. See, bond investors generally want to see less borrowing from the federal government and smaller budget deficits. Also, gridlock prevents any massive spending bills from going through, so the government would likely be borrowing less, and there would be fewer bonds actually on the market. National City economist Richard DeKaser gives us the Bonds 101 CliffsNotes here.

Mr. RICHARD DEKASER (Economist, National City): The bond market is generally going to like this situation of less bonds coming to the market, because those which they're holding become more valuable.

BRAND: Okay, so that's bonds. What about stocks?

BABIN: Well, equities we have next. And the equity markets would fare well under divided government say some analysts. But others say a Democratic win in the House could make things difficult for some sectors.

Coming up later today on MARKETPLACE, microcredit and how it's making a difference in Senegal.

BRAND: Thank you, Janet, Janet Babin of public radio's daily business show MARKETPLACE, produced by American Public Media.

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