ETF Trends
ETF Trends

In the hotly contested midterm elections, the Democratic party lost control of the House and the GOP made some nice gains in some governors’ races. There are some exchange traded funds (ETFs) that can help you capture the power shift.

The new year could bring some potential shifts for investors seeking change. David K. Randall for Yahoo Finance reports the Republican takeover of the House on Tuesday means Wall Street will be contending with three situations in 2011 that could have a big impact on stock prices – for better or worse:

  • It’s the year before a president faces re-election. Since 1945, the Dow has risen an average of 19% in the year before an incumbent president runs for re-election. Though there are theories as to why this is, none of the explain why the markets tend to rise in a president’s third year.
  • It’s the year after a president has lost control of Congress. Gridlock hasn’t been great for stocks. Since 1945, the S&P has gained 4% in years that Congress was divided.
  • It’s the second year of fragile economic expansion. The economy is growing at a historically slow 2% annually. In such slow recoveries, a bull market generally lasts 30 months and has gains of about 44%.

Washington will be under the microscope next year like never before.

The ETF Professor for Benzinga highlights some ETFs that have the potential to respond well to a Republican-led House, though we’ve switched it up a little:

  • iShares Dow Jones U.S. Oil & Gas Exploration & Production (NYSEArca: IEO): Oil companies have probably been rejoicing at the election results. Democrats have been historically unkind to big oil.
  • Market Vectors Coal ETF (NYSEArca: KOL): Republicans nabbed Senate seats in Illinois and Pennsylvania, and West Virginia’s Democratic senator isn’t uber-liberal. A more favorable regulatory environment could benefit coal ETFs such as this one.
  • Health Care Select Sector SPDR (NYSEArca: XLV): Republicans might dump or significantly alter the health care bill; if that happens, XLV might get a bump.
  • PowerShares Aerospace & Defense (NYSEArca: PPA): Though defense spending may still be cut, it might remain strong enough to benefit ETFs such as PPA.
  • PowerShares Dividend Achievers (NYSEArca: PEY): Republicans want to extend the Bush tax cuts. If that happens, it could be good news for dividend stocks.

Tisha Guerrero contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.