The market reaction to the Democratic victory was a little bit surprising.  Most of the drug stocks I follow, particularly pharma and managed care, lost significant ground in the last few days.  I expected some downward pressure but this seems like an over reaction. At this point there does not seem to be a uniform policy approach to drug pricing that would broadly affect the sector.  Furthermore, we are through the worst of the patent expiries and the volume outlook for many of these companies looks reasonably good. Lastly, many of the Democrats that won are fairly moderate and fiscally conservative. It is harder to make the case today that a Democratic Congress necessarily drives pricing pressure. I can only conclude that this is a knee-jerk reaction to the unexpected Senate win and potentially a good buying opportunity.

On the other hand, the Rumsfeld resignation combined with the Democratic win resulted in a very rational response in defense stocks. While I am skeptical that we will be leaving Iraq any time soon, these changes do suggest a decline in troop levels over the longer term.