So I’ve been pondering the intersection of the Efficient Market Theory and the coming 2006 midterm elections and what a record high Dow means for the GOP. On the face of it, one would think a strong Dow would signal that the market expects the GOP to hold on to Congress. The other hypothesis is that the investing class is so fed up with the Bush/Hastert/Frist GOP that they look forward to a Pelosi/Reid takeover of Congress.

The latter is a pretty damning judgement of the GOP. So the question is, what other market signal might we use to predict what will happen in November? That lead to the question of which public company stands to lose the most if the Dems take charge. Lets look at three companies that have been demonized by the left over the years: Haliburton, RJR, and Altaria (Philip Morris).

Looking at the 3 month graphs for RAI and MO, I see a sharp drop on the 18th and 22nd of September respectively. Both of those drops were due to a judicial ruling setting up a class action suit over “light” cigarettes. MO has since made up half the ground it lost that day, and RAI has recovered a third of its drop.

Haliburton is a bit different. Wrapped up in the July GOP primary, I missed this bit of news about the Army cancelling HAL’s contract. It was trading as high as 37 when that news broke. It bottomed out at 26 on October 3rd (right as the Foley mess was hitting the GOP the hardest) and has regained some group to close at 28.7 on Friday.

So neither Tobacco nor Haliburton seem to present any leading indicators as to how the midterms will play out, and I keep looking.