How the new Congress may affect stocks in 2011
Next year will be a year unlike any other for the stock market. The Republican takeover of the House of Representatives on Tuesday means Wall Street will be contending with three situations in 2011 that drive stock prices: The year before a president faces reelection; the year after a president has lost control of Congress; and the second year of a fragile economic expansion.
The market often behaves a certain way in each of those situations, but investors have never faced this trifecta before. Any mishandling of the economy by politicians, says Robert Doll, chief investment strategist at BlackRock, will mean that “the fragile economic recovery we have is going to be hit over the head, and we would have to think about a double-dip recession all over again.”
The economy is growing at a 2 percent annual rate, according to the latest estimate by Commerce Department officials, slow by historical standards.
Corporate profits are improving, and wealthy consumers are starting to make some costly purchases. If the economy continues to improve, stocks will likely rise. But large gains are unlikely because the economy needs to grow 3 percent or more to bring down the country’s 9.6 percent unemployment rate and residential and commercial construction—the fuel of economic recoveries—remain weak.
So what’s an investor to do given this abnormal year? The best thing may be to follow your long-term plans regardless of what happens in Washington.
“There’s no way to tell what’s going to happen, or we would all be rich,” says Paul Larson, the chief equities strategist at Morningstar.
The Associated Press contributed to this report.

















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back to top5 Comments to “How the new Congress may affect stocks in 2011”
What wee have here is the Fed in total contol not Congress. The Fed has decided to start walking out on a tight rope and we had all better pray they don’t fall off.
As of yesterdays FOMC meeting the Fed has decided to try and pull the wool over our eyes so we won’t recognize what they are doing. What are they doing? They have started to use a new word/phrase-QE. And QE2 which stands for Quntitative Easing, which really means we are buying our own debt again which really means we are PRINTING money again, wich really means INFLATION.
May sound good for the short haul(stock market up, metals up grains skyrocketing) but inflation will kill us again in the long run.
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If the new congress does not extend the current tax levels, and instead allows them to be raised, the stock market will take a dive.
If the new congress allows healthcare to progress forward next year, the stock market will dive.
Part of the reason we are up this quarter is everyone making their money now, while they can.
I expect a dive around jan/feb 2011 even if one of these is handled.
The only way that’ll be different is if the health bill actually made health care the next bubble. Then you’ll see another bubble with an even bigger crash to follow over the next couple of years. However, it has too much opposition, which is why I dont think the dive is much more likely to occur.
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Err that last line should be “which is why I think…”
And yes Five, inflation would be very harmful to the consumer.
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Thorn, I’d like to clarify:
Inflation would be very harmful to the financially prudent, those who save. It would be helpful for the financially irresponsible, those in a lot of debt. Inflation essentially transfers value from those with savings to those in debt.
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JohnV,
It would only benefit those with a lot of debt if they have a fixed interest rate since inflation usually means high interest rates.
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