Instant View: Stock futures slip

NEW YORK (BestGrowthStock) – U.S. equity futures turned negative after Republicans were projected to take control of the House of Representatives, but chances to take over the Senate waned.

KEY POINTS: * Anxiety over the stumbling economy and discontent with President Barack Obama have propelled Republicans to the threshold of big gains. The Republicans needed a net gain of 39 seats to take the House of Representatives; it was expected they would take enough seats to win the House. * A win by Democrat Joe Manchin in the race for the late Senator Robert Byrd’s West Virginia seat means Republicans have the difficult task of sweeping six crucial toss-up Senate races, including those in Democratic-leaning California and Washington, to claim a majority. * Republicans picked up two Senate seats from Democrats in Indiana and Arkansas, where they bumped off Senator Blanche Lincoln. They also held their Senate seats in Ohio and New Hampshire. Florida Republican Marco Rubio and Kentucky Republican Rand Paul became the first Tea Party-backed candidates to win Senate seats, ensuring an influx of conservative views in the staid chamber.

COMMENTS:

NICK KALIVAS, SENIOR EQUITY INDEX ANALYST, MF GLOBAL, CHICAGO:

“The Fed tomorrow is a bit of an overshadow, but there is a chance of reality setting in that it’s still going to be hard for major change to the Obama policy to occur. It’s going to be hard to roll back healthcare, it’s going to be hard to cause a major shift in regulation.

“The best thing is the tax policy will probably be favorable and there’s no cap and trade, but we knew that coming in.

“I think a lot of people are going to watch what President Obama says tomorrow, whether he starts to lurch to the center-right and become a Bill Clinton or does he stay the course.

“They’ll also be watching (John) Boehner’s statements in terms of how he’s going run the House. (House Speaker Nancy) Pelosi ran the House with an iron fist, very top down, and the fact that the Democrats got such a shellacking, it has to change some of how the House operates. The individual members might be a little bit more antagonistic toward the leadership .. so it might not be quite as easy to change policy to some degree because of that.”

BOB GORMAN, CHIEF PORTFOLIO STRATEGIST AT TD WATERHOUSE IN TORONTO:

“The polling data has been so consistent for so long that tonight’s results are probably not going to come as a big surprise, so I think an awful lot is already baked in.

“My own expectation is tomorrow the markets will be much more affected by the language coming out of the Fed surrounding quantitative easing. So I’d be careful of reading too much into tomorrow’s market movement as a reaction to tonight’s electoral shifts.

“Administrations dominated by one party, which is what you’ve had over the past couple years, tend to very much driven by the party’s ideology. In contrast, when you get a balance of power — one party controlling Congress, the other the White House — pragmatism tends to rule.

“My own take on this is I think you’re going to see a shift from ideology to pragmatism and that will be fairly beneficially both for the country and the market over the balance of this year and 2011.”

JERRY WEBMAN, CHIEF ECONOMIST AND SENIOR INVESTMENT OFFICER, OPPENHEIMERFUNDS, NEW YORK:

“Things are running true to form and everything is pretty much as you’d expect with Republican wins. It looked like it would be 51-49 in the Senate either way, but right now it suggests that Democrats will maintain a majority, even though no one will have a 60-vote majority.

“Futures are flat right now because everything is coming in as expected. We’re looking at gridlock. It could be that tomorrow gives us a GOP house, a close call but a Democratic majority in the Senate, and a modest QE program, which is what the markets have expected. We could sell on the news, or we could have a relief rally. Both those cliches could happen, but right now it doesn’t look like there’s going to be anything here that could change the game.”

QUINCY KROSBY, MARKET STRATEGIST AT PRUDENTIAL FINANCIAL IN NEWARK, NEW JERSEY:

“Going into this, the market had baked in that the Republicans make inroads in the Senate, but not take over the Senate. So the question is how many seats do they get in the Senate and what is the majority in the House?

“If we go in (Wednesday morning) and the Republicans make tremendous headway in the Senate and that’s not baked into the market, you could see energy stocks moving up or healthcare stocks moving up. Any part of the sector complex where you’d expect the Republicans to take a strong interest in.

“The market will be in that anticipatory state as you get closer to (Wednesday’s FOMC) announcement, unless there are leaks.

“Tomorrow is the opening day essentially of the race for the presidency. As you move into the year, the market is going to be factoring whether the Republicans can take the White House.”

MICHAEL FARR, PRESIDENT, FARR, MILLER & WASHINGTON

“So far the markets have priced in a Republican victory in the House, with the Democrats retaining the Senate. The Fed’s announcement tomorrow is much more critical and really should have much more of the market’s focus.”

“A Republican-controlled House is more likely to push free trade. They can influence Obama, particularly with South Korea, Colombia, Panama — all of those have trade agreements in negotiations. Nuclear power could win some more support. Unions will face much greater challenges, particularly in their legislative goals.

“You will see perhaps a call for greater transparency at the Fed. I am a little concerned about things that otherwise would be normal — the approval of an increase in the debt ceiling. It’s a normal thing that Congress does. But if we get too many Tea Party Republicans in maybe they don’t vote for it.

“Fannie Mae and Freddie Mac have already said that they need another $230 billion net from the government. That needs to be approved by Congress. And I wonder if Tea Party Republicans will agree to spend more money in order to support the housing market, particularly when they have come in on a platform of reducing government spending.”

MARKET REACTION: STOCKS: U.S. stock index futures were slightly lower BONDS: U.S. Treasury debt prices were little changed

Instant View: Stock futures slip