INVESTORS can expect more tax cuts, a boost to drug and energy stocks and expansion of retirement accounts as a result of last week's election, which will give Republicans control of Congress.
More significant shifts, though, are less likely.
"It's still very difficult to get any major legislation passed without a super-majority vote, namely 60 votes," said Jonathan Murray, a senior vice president with Legg Mason Wood Walker Inc. in Baltimore.
"Investors should know that the most likely outcome, even with Republican control of the Senate and House, is still gridlock and the status quo, which historically is what Wall Street wants because it means less government intervention and pushing of party agendas from either party," he said.
Still, some logjams will be cleared when Republicans take over the Senate in the next Congress. Here's what to expect:
Taxes. Unless Congress acts, tax breaks in last year's tax law expire after 2010, including the repeal of the estate tax. With Republicans in control, the tax cuts are expected to become permanent. And some tax breaks that take effect in the next few years might be accelerated, experts said.
New tax breaks are likely, too. Some predict a cut in the tax that investors pay on dividend income.
Others expect investors to be allowed to write off more of their investment losses on their tax returns. Currently, investors can offset gains with losses and deduct an additional $3,000 of investment losses annually. That limit might be raised to $10,000.
"Those would be the things the market really cares about. Anything that increases after-tax returns on investments will be good for the stock market," said Chuck Carlson, chief executive officer of Horizon Investment Services in Indiana.
Last year's tax law also offered temporary relief from the alternative minimum tax, which was designed to prevent the wealthy from avoiding taxes but now traps a growing number of middle-income families. Republicans are likely to adjust the AMT so that it snags fewer middle-income taxpayers, said Meg VanDeWeghe, executive in residence at the University of Maryland in College Park.
Stocks. Despite Republicans' pro-business reputation, having a Republican president and a Republican Congress traditionally hasn't been good for the market. "That's actually the worst" combination, said Anthony Chan, chief economist for Banc One Investment Advisors in Ohio.
The Dow Jones industrial average has gained an average of 0.3 percent a year when Republicans have controlled the executive and legislative branches, according to survey of the past 101 years by Ned Davis Research in Atlanta. The index rose an average of 6.3 percent a year when Republican presidents shared power with a Democratic Congress.
"History doesn't have to repeat itself," Chan said.
After almost three years of negative returns, the stock market is bound to have a better year next year, experts said. And next year will be the third year of the president's term, traditionally a strong year for the market no matter what party occupies the White House.
Some industries will get a boost from Republican control, particularly defense and pharmaceuticals, experts said.
"Under either party, we were looking at higher government spending on defense, but particularly with Republicans in Congress, you will see more support for President Bush's national security priorities," Murray said.
Large pharmaceutical companies would be under less pressure to reduce prices under a Republican prescription drug benefit program, and they are likely to get greater patent protection from generic competition with a Republican Congress, experts said.
Tobacco, telecommunications and media companies, too, are likely to benefit because of less-stringent regulation of their industries under the new Congress, Murray said.
And energy companies' stock prices might jump as Republicans seek to expand oil drilling in Alaska and promote nuclear power, experts said.
"In some instances, it's not necessarily that industries will benefit greater under Republican control, but they won't be as damaged, as hard-hit, if they were under a Democrat-controlled Senate," Murray said. Those industries include managed care and health insurance companies, which would have faced greater challenges under a Democratic patient's bill of rights, he said.
Individual Retirement Accounts. Republicans might resurrect IRA proposals, most of which would help investors who don't need their IRA money to live on and want to keep it in their accounts growing tax-deferred for heirs, said Ed Slott, editor of Ed Slott's IRA Advisor newsletter.
Among them is an increase in the age at which IRA owners are required to begin taking distributions. The age limit might be raised to 75 from the year after an owner turns 70 1/2 , he said.
Also, Republicans might push to exempt the first $300,000 in an IRA from required distributions. "If you don't need that money, you have more to pass on to beneficiaries," Slott said.
Republicans are also likely to further raise contributions workers can make to 401(k)s and IRAs, particularly workers 50 and older who need to catch up on their retirement savings, experts said.
Financial advice. Republican-sponsored legislation to provide financial advice to 401(k) participants stands a better chance of passing. It would allow financial firms that manage 401(k)s or whose funds are in the plan to give advice, provided conflicts of interest are disclosed. Consumer advocates have opposed the bill, favoring another that requires independent advice.
"If there is anything we should have learned in the past year it is that conflicts of interest matter. They matter for audits, they matter for analysts, and they matter for people who give advice to individual investors on how to invest their money," said Barbara Roper, director of investor protection for the Consumer Federation of America.
To suggest a column idea, contact Eileen Ambrose at 410-332-6984 or by e-mail at eileen.ambrose@baltsun.com.