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Major Market Catalyst On Horizon

Despite the heat wave sweeping the nation, it’s time to start thinking about fall. And one catalyst appears to trump all others as the major market mover.

We’re talking the mid-term election.

All 435 seats in the House are up for grabs, and 37 of the 100 Senate seats are available. Democrats are trying to hold on to the majorities, while Republicans attempt to gain power in at least one chamber of Congress.

According to the website, Examiner.com, traditionally, the minority party gains seats in a midterm election, and 2010 appears no different. At this time, it appears the question is not whether Republicans will gain seats, but how many seats they gain. Republicans need 40 more seats in the House to constitute a majority. In the Senate, Republicans will need 10 more seats to take away the majority from the Democrats.

And with 99 days until voters hit the polls pundits largely expect the Bush-era tax cuts to emerge as a critical theme.

The WSJ says Democrats are aiming to push legislation extending Bush-era middle-class tax cuts ahead of midterm elections.

"Members of the tax-writing Senate Finance Committee held a series of closed-door meetings last week to begin negotiating the outlines of an extension bill. But already, four senators whom Democrats normally would count on have said they have concerns about letting the upper-income breaks lapse while the economy is weak."

The paper also says, "If the Senate ultimately is unable to muster the votes to pass a tax bill, some knowledgeable Democrats predict the House still might try a short-term middle-class extension bill ahead of the election."

What should you be watching?

Instant Insights with the fast Money traders

I don’t think there’s a chance they extend the Bush tax cuts, says Steve Grasso. However if they do water down cap and trade it should be good for coal stocks.

If anything keeps this market range bound it’s the uncertainty surrounding the election, adds Joe Terranova.

I’m watching healthcare in the wake of reform, says Karen Finerman. I like Becton Dickinson , Bard and Covidien . We haven’t seen these stocks trade at such a low multiple in quite some time.

I agree that Becton Dickinson is worth watching, adds Guy Adami. It’s trading at 13 times forward earnings and it typically trades around 19 times.


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Trader disclosure: On July 26, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami owns (AGU), (BTU), (NUE), (C), (GS), (INTC), (MSFT); Adami’s wife works at Merck; Finerman owns (AAPL); Finerman's firm owns (BP) calls; Finerman's firm owns (PM); Finerman's firm owns (JPM); Finerman owns (JPM); Finerman's firm owns (BAC); Finerman owns (BAC); Finerman's firm is short (IJR); Finerman's firm is short (MDY); Finerman's firm is short (IWM); Finerman's firm is short (SPY); Grasso owns (ASTM), (ABK), (BAC), (BA), (BGP), (C), (CSCO), (DYN), (JPM), (LPX), (MO), (NDAQ), (PFE), (PRST); Kelly owns (BP) puts; Kelly is short (GS); Terranova owns (AMZN), (EMC), (CREE), (CRCM), (LRCX), (COP), (AXP), (BMO), (CSX), (PEP), (CVS), (GS), (PCP), (C), (GLD), (APA), (FCX), (JOYG), (MMM), (MOS), (GLD), (UAUA), (WYNN), (GOOG), (BBY), (SU), (KOL)

For Steve Grasso
Stuart Frankel & Co and it’s partners own (BAX)
Stuart Frankel & Co and it’s partners own (COG)
Stuart Frankel & Co and it’s partners own (CUBA)
Stuart Frankel & Co and it’s partners own (DHR)
Stuart Frankel & Co and it’s partners own (DYN)
Stuart Frankel & Co and it’s partners own (GERN)
Stuart Frankel & Co and it’s partners own (HSPO)
Stuart Frankel & Co and it’s partners own (IP)
Stuart Frankel & Co and it’s partners own (MERC)
Stuart Frankel & Co and it’s partners own (NWS.A)
Stuart Frankel & Co and it’s partners own (NYX)
Stuart Frankel & Co and it’s partners own (PDE)
Stuart Frankel & Co and it’s partners own (PFE)
Stuart Frankel & Co and it’s partners own (PRST)
Stuart Frankel & Co and it’s partners own (RDC)
Stuart Frankel & Co and it’s partners own (SYMC)
Stuart Frankel & Co and it’s partners own (TBT)
Stuart Frankel & Co and it’s partners own (TLM)
Stuart Frankel & Co and it’s partners own (TRV)
Stuart Frankel & Co and it’s partners own (XRX)
Stuart Frankel & Co and it’s partners own (SDS)
Stuart Frankel & Co and it’s partners are short (QQQQ)

For Brian Kelly
Accounts managed by Kanundrum Capital own (ELX)
Accounts managed by Kanundrum Capital own (QLGC)
Accounts managed by Kanundrum Capital own (BIG)
Accounts managed by Kanundrum Capital own (GME)
Accounts managed by Kanundrum Capital own (TLT)
Accounts managed by Kanundrum Capital own (NWL)
Accounts managed by Kanundrum Capital are short (GLD)
Accounts managed by Kanundrum Capital are short (EWO)
Accounts managed by Kanundrum Capital are short (EWI)
Accounts managed by Kanundrum Capital are short the Euro
Accounts managed by Kanundrum Capital are short the UK Pound
Accounts managed by Kanundrum Capital are short (JOE)
Accounts managed by Kanundrum Capital are short (IWM)

For Joe Terranova
Terranova works for (VRTS)
Terranova is chief market strategist of Virtus Investment Partners, LTD.
Virtus Investment Partners owns more than 1% of (CASS)
Virtus Investment Partners owns more than 1% of (LDR)
Virtus Investment Partners owns more than 1% of (LPHI)
Virtus Investment Partners owns more than 1% of (MGRC)
Virtus Investment Partners owns more than 1% of (XLB)
Virtus Investment Partners owns more than 1% of (XLP)
Virtus Investment Partners owns more than 1% of (XLY)
Virtus Investment Partners owns more than 1% of (XLI)
Virtus Investment Partners owns more than 1% of (XLK)
Virtus Investment Partners owns more than 1% of (XLU)
Virtus Investment Partners owns more than 1% of (SUBK)
Virtus Investment Partners owns more than 1% of (WDFC)
Virtus Investment Partners owns more than 1% of (YDNT)
Virtus Investment Partners owns more than 1% of (DRYS)

For Dennis Gartman
Funds Managed by Dennis Gartman Own (FCX), (PCU), (XLB), (IYT)

For Mike Khouw
Cantor Fitzgerald makes a market in (MEE)

For Niamh Alexander
KBW expects to receive or intends to seek compensation for investment banking services from Nasdaq OMX Group in the next three months.
KBW currently makes a market and/or acts as a liquidity provider in Nasdaq OMX Groupsecurities.
KBW expects to receive or intends to seek compensation for investment banking services from CME Group, Inc. in the next three months.
KBW currently makes a market and/or acts as a liquidity provider in CME Group, Inc.securities.
KBW has received compensation for investment banking services from CBOE Holdings, Inc in the past 12 months.
KBW has managed or co-managed a public offering of securities for CBOE Holdings, Inc in the past twelve (12) months.
KBW currently makes a market and/or acts as a liquidity provider in CBOE Holdings, Inc securities.
CBOE Holdings, Inc currently is, or was during the 12-month period preceding the date of distribution of this report, a client of KBW.
KBW expects to receive or intends to seek compensation for investment banking services from Intercontinental Exchange, Inc. in the next three months.
KBW currently makes a market and/or acts as a liquidity provider in Intercontinental Exchange, Inc.securities.
KBW expects to receive or intends to seek compensation for investment banking services from NYSE Euronext in the next three months.
KBW currently makes a market and/or acts as a liquidity provider in NYSE Euronextsecurities.
Keefe, Bruyette & Woods is a member of the New York Stock Exchange.

For Mark Gilman
***No Disclosures***

For Gary Shilling
***No Disclosures***


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