Election 2010: What It Means for Your Money

Final score: Republicans take the House, Democrats hold the Senate, Giants win it all! 

The 2010 elections are in the books, meaning a one-year hiatus from robo-calls and a projected 90% drop in examples of Godwin's Law. It also means a new dynamic for the economy and your investments. What should you expect?

The standard narrative making the rounds is that gridlock -- a divided Congress and White House, which it's safe to say we now have -- is good for both the economy and the stock market. The reasoning goes like this: A government unable to pass any legislation boosts business confidence because the future becomes clearer. Knowing that nothing is going to get done is better than not knowing what will get done. Thus, the story goes, gridlock boosts the economy.

Don't buy it.

The example most used when cheering the go-for-gridlock argument is the 1990s, when gridlock was so bad that nonessential government services were temporarily shut down while the economy went parabolic.

The problem with this example is confusing correlation with causation. Yes, there was gridlock in the '90s. But the technology boom that lifted the '90s began well before gridlock. And this boom showed no signs of slowing in cases when Washington did manage to get stuff done. Microsoft (Nasdaq: MSFT  ) was sued by the government for antitrust in May 1998, yet its stock tripled over the following 18 months. It's crazy to think congressional kumbaya would have made a difference during a time when optimism was so high that federal antitrust lawsuits were discounted as irrelevant. Besides, much of the '90s prosperity was a bubble. I'm always amazed at how nostalgic we get over periods that ended so, so badly.

Also going against the pro-gridlock argument: We're chest-deep in problems that need fixing. Tax reform. Deficit reduction. Trade policy. Entitlement reform. Regardless of how you feel these issues should be solved, it's a given that they need to be solved. The status quo simply isn't viable. Hard to see how gridlock is a plus in that situation. Abraham Lincoln wasn't kidding when he said, "A house divided against itself cannot stand."

On to the stock market. The idea that stocks do better during gridlock is easily dispelled by the findings of S&P strategist Sam Stovall, summarized here by Annie Lowrey of Slate:

Over all years, the S&P rose at a 6.8 percent annual pace. During times of total unity, 67 of the 111 years analyzed, it gained 7.6 percent annual pace. During times of partial gridlock, accounting for 32 years, they gained 6.8 percent. And during the 12 years of a gridlocked Congress, the S&P gained just 2 percent per year

This doesn't mean there are no winners from yesterday's election, however. Two industries in particular gained serious support.                                                                                     

Health insurers
Republicans' official Pledge to America minces no words: "We will repeal the new health care law." This seems highly unrealistic, but there's no doubt about it: Insurance companies like UnitedHealth (NYSE: UNH  ) and WellPoint (NYSE: WLP  ) have more friends in Washington today than they did yesterday. That gets more interesting when you consider health insurance companies have been some of the cheapest stocks in the market lately.

In August, hedge fund manager David Loeb called WellPoint, "a statistically cheap stock owned by several hedge funds, but which we saw as being overly exposed to unpredictable government regulation." That regulation is still unpredictable, but the odds of success are more favorable to health insurers now than they were yesterday.

Banks
My Foolish colleague James Early explains this better than I can:

We just passed a financial reform law that would seem to make everything cut and dry. In fact, it's the opposite. This law punts a lot of the decisions to individual agencies. And given the backdrop of a Republican Congress, a lot of decisions are going to start to favor banks like Citigroup (NYSE: C  ) , JPMorgan Chase (NYSE: JPM  ) , Goldman Sachs (NYSE: GS  ) , and others.

I wouldn't consider this a reason to buy banks if you weren't already interested in them yesterday. But as with health insurers, banks have more friends now than they did before.

What are your thoughts on how yesterday's elections will affect your money? Sound off in the comments section below.

Fool contributor Morgan Housel owns shares of Microsoft, and an "I voted" sticker. Microsoft, UnitedHealth Group, and WellPoint are Motley Fool Inside Value selections. The Fool owns shares of Microsoft and UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (14) | Recommend This Article (37)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 03, 2010, at 3:47 PM, TheMotleyTimbear wrote:

    I would prefer health insurers continue to add customers (30 million of them) to their base to diffuse some of the risk they take on, and actually assist when their customers need help. The status quo of dropping coverage is unacceptable

  • Report this Comment On November 03, 2010, at 5:34 PM, kankead wrote:

    I am a surgeon and a small business owner. I am hopeful that yesterdays results will lead to us having a chance to repeal or bankrupt the suspiciously named "Healthcare Reform Act". I am realistic enough to know that this is not that easy. While I whole-heartily think that this bill will destroy the best medical treatment delivery system in the world, I also believe that it will force many physicians out of Good Samaritan deeds due to time and financial constraints. It will also effect the quality of those who go into the field of medicine. On a more business like level, we will now be under the scrutiny of the federal government. One of the more obvious problems here is the bureaucracy that is involved. We are going to have to submit 1099 forms for every purchase and every amount we receive over $600. This will be an accounting nightmare. This is just one example of day-in day-out intervention that will make things more difficult on the provider, and ultimately on the patients.

    I do think that Healthcare investments will be a good move for now. I cannot really understand why they would have been worthwhile prior to last night. The health insurance companies will eventually be taken over or ran out of business should the healthcare bill be completely implemented-this is the goal of the government. Now that it is in some trouble, an investment might be justified. I would not look beyond a ten year window at this point.

  • Report this Comment On November 03, 2010, at 5:56 PM, Creola0130 wrote:

    While I would like much of the health care bill to be reviewed and changes made, I hope there will be compromises on both sides of the aisle; and, from a bill that is not favored by the majority of Americans, some elements that both parties can agree on will be salvaged.

  • Report this Comment On November 03, 2010, at 6:06 PM, circaclown wrote:

    "Abraham Lincoln wasn't kidding when he said, "A house divided against itself cannot stand.""-- I pretty sure that if Abe said it, he was quoting Jesus

  • Report this Comment On November 03, 2010, at 6:28 PM, TMFHousel wrote:

    " I pretty sure that if Abe said it, he was quoting Jesus"

    Not exactly word-for-word, but similar, yes.

  • Report this Comment On November 03, 2010, at 6:28 PM, xetn wrote:

    A very good analysis on federal entitlements and what you can expect:

    http://www.lewrockwell.com/north/north901.html

  • Report this Comment On November 03, 2010, at 7:05 PM, MMTInvestor wrote:

    I love James and am a grateful II subscriber, but "the Congress" is not Republican; only the House of Reps is. And while it's clear that the banks again have more "friends" in Congress, we have so many serious economic and financial problems that I can't see how this meaningfully helps their stocks' prospects.

    Scott

  • Report this Comment On November 03, 2010, at 7:20 PM, stan8331 wrote:

    The bottom line for me is that if we don't find a way to drastically reduce our healthcare spending, baby boomer retirement will end up bankrupting the country. Unfortunately, right now, while we still have some time to find a non-draconian solution that preserves human dignity, nobody wants to accept that THEY will personally have to sacrifice anything. Not doctors, health insurers, drug companies or the American people as a group. Everyone is still clinging to the idea that the problem can be resolved by the sacrifices of others. We keep swapping out politicians as if the answers that didn't work last time will now magically erase our worries. I'm afraid that by the time we finally figure out that there is no magic bullet, it will be too late to avoid disastrous consequences.

  • Report this Comment On November 03, 2010, at 9:52 PM, canadacomments wrote:

    stan8331 - As an outsider, I think that you have hit the nail on the head. The same comment can be made related to your country's HUGE debt. As a Canadian, my economic and financial well being is tightly tied to the US. I hope that this Congress can find the time to stop bashing one another long enough to actually look for some answers.

  • Report this Comment On November 03, 2010, at 11:24 PM, TrumanTrout wrote:

    As an American citizen who relocated to Japan last year, I feel compelled to offer a dissenting opinion to kankead's assertion that America has "the best medical treatment delivery system." The best for whom? Not for the patient, I believe. America vastly outspends other developed countries as a percentage of GDP, but what are the results? It's well-documented elsewhere that simple measures of outcomes show that American spending doesn't produce better outcomes. It may be the case that more complex measures of outcomes can show some good results from all the spending, but on the whole the American system is inefficient. Some of the extra spending surely goes to the noble cause of advancing medicine for everyone's benefit. But a good deal of it ends up not helping a patient.

    On a more concrete level, let me compare the experiences of my mother back in America with my Japanese mother-in-law. Thankfully neither has any major health issue, but both regularly see providers for minor issues. My mother maintains a 12 to 15 inch high stack of papers on her desk from doctors, insurance companies, and Medicare. In addition, about every three years or so it seems the retirement plan seems to change providers which results in a new set of plan choices. The American system definitely is the best at forcing a bewildering array of not necessarily favorable choices on retirees. Dental coverage is a dilemma for my mother. Is it worthwhile paying high premiums or should she risk going without insurance and just pay out-of-pocket?

    In contrast, there's something missing from my Japanese mother-in-law's house. The giant stack of papers doesn't exist. When she's sick she goes to the doctor, and that's the end of it. Plan choices, in-network vs out-of network, etc. aren't dilemmas here.

    The ease of use of the Japanese system is a little shocking for me as an American. And to American sensibilities it seems to be a little overused as people go see the doctor for even minor colds. So how is it that Japan manages to spend much less than what America spends as a percentage of GDP? Perhaps some experts out there can educate me.

    As for me, however, I'm happy to not be dealing with American insurance companies any more. Next time you find yourself arguing over a bill with your insurance company or agonizing over your plan choices, keep telling yourself "this is the best health-care delivery system in the world." You'll need to believe it to keep torturing yourself with it. Suppress your feelings that there must be a better way.

    But back on subject, I do believe that insurance stocks will do well and should easily cover their dividends. I'm in. That's what's really important, right?

  • Report this Comment On November 03, 2010, at 11:36 PM, jomueller1 wrote:

    to Mr. kankead and everyone else

    In typical US brainwashed fashion the US health care system is described as "best medical treatment delivery system in the world". Unless you studied health care systems all over the world you make an unfounded statement.

    For me the system stinks because I cannot get insurance and as I age I may be forced to go to another country. Is that "the best in the world"? I think, not.

    Everyone should be able to make a living from what they do, hopefully a good one. But having investors become rich when their own countrymen suffer is immoral. And that in a country with a high percentage of religious people!

    Where I come from there is no need for "Good Samaritan" work because everyone is insured and has a right to be treated, not just the luck to be treated. For me it is just fine if the health insurers work on a not for profit basis. But please, reorganise the system in a way that everyone can get decent coverage at a decent price without the limitations that insurers have to enhance and protect their profits.

    Health care is bigger than companies and care givers.

  • Report this Comment On November 03, 2010, at 11:44 PM, jomueller1 wrote:

    to Mr. TrumanTrout

    well said! My home country is seemingly as efficient as Japan. You do not need any paper work and your copay for doctor's visits or hospitals is only a small amount that makes you think if you should see the doctor for everything but it does not deter you.

    Am I glad that someone else shares my criticism of "the best in the world". On the other hand, I do not share the view that the money is the most important and I rather invest in some other companies.

  • Report this Comment On November 04, 2010, at 2:00 AM, lodrogarma wrote:

    Anyone who thinks the U.S. health system is "the best in the world" has obviously never been anywhere else.

  • Report this Comment On November 04, 2010, at 5:16 PM, wyrdmage wrote:

    Not many countries have medical systems as good or better than the U.S., but those that do... collect more from the patients through non-medical means (taxes, fees, etc.). I have lived in several countries outside of the U.S. and experienced worse medical systems than ours but paid more for it through higher taxes (for instance, if you need non-emergency medical treatment from the socialized programs of Great Britain or France, you would be better off going to America for it).

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