We’re just 90 days away from Congressional mid-term elections, so it’s time to think about what that might mean for investors’ portfolios. If it becomes increasingly clear that the GOP will re-take control of one or both houses of Congress, it could provide a lift to stocks before those elections. And not necessarily for the reasons you think.

Tip of the hat
First off, I want to give kudos to James Surowiecki, the financial columnist for the New Yorker magazine. He is, to my mind, the greatest financial writer of our generation, consistently exploring economic and financial issues in ways that the rest of us fail to articulate. His latest column, from the August 2 issue entitled “Blame Games,” makes a very important and little-mentioned point. Surowiecki notes that cash-rich companies are sitting on their hands, citing the popular notion that the Obama administration’s get-tough stance with business is a key impediment to capital spending. He rightly notes that concerns about President Obama’s policies may be more imagined than real, but perception is everything.

Surowiecki goes on to suggest that the “Obama factor” is overblown and companies are sitting on cash because few enticing options exist. I disagree. Many companies can and should be seeking out growth opportunities and are instead focusing on buybacks and dividends because that’s the safer path at a time when government policy is in flux.

Not about the consumer
Many economists remain fixated on the consumer, fretting that an ever-increasing savings rate and a distressed housing sector are the real reasons behind the still-weak economy. But you can’t deny the fact that corporations are minting record profits and should be on a hiring and capital expenditure spree by now. Fortune 500 companies are sitting on a hefty $1.8 trillion in cash. Buybacks and dividends are a nice use of that cash, but investing in growth initiatives still remains the best move for long-term shareholders. And executives know that.

Even more gridlock?
Whether your politics skew to the left or the right, your portfolio would benefit from a leadership change in this November’s elections. That’s because investors — and corporate executives — know that when the White House and Congress are led by different parties, it becomes much harder to make major changes to government policy.

#-ad_banner-#You could certainly argue that the current environment already has too much gridlock, and these are very challenging times that call for major systemic change, but the rhetoric could actually cool down once the GOP has a greater stake in governing. (It’s hard to be a nay-saying opposition when voters see that you are in charge).

With the possibility of a cooling in combative GOP rhetoric and a less aggressive White House, corporations may become more emboldened to start spending and hiring, thus getting the economy moving again.

Past is prologue
In several respects, this era is shaping up to be a lot like the 1990s. In the early part of that decade, companies shed workers, expanded profit margins and built considerable cash balances. Then in 1994, the Clinton Administration was forced to deal with an opposition-led Congress and moved closer to the center. That in turn led to a more balanced gridlocked environment which led companies to start opening up their wallets. A historic bull market ensued as capital spending rose and unemployment dropped.

Action to Take –> There would be two clear beneficiaries of such an environment: Capital spending plays first, and consumer spending plays after that. On the capital spending front, technology firms would move onto a nice growth path as companies sought out investments that helped them gain an edge. Software giants like Oracle (Nasdaq: ORCL) and hardware giants like Cisco Systems (Nasdaq: CSCO) would start to merit an ever-increasing P/E multiple on steadily rising profits.

On the consumer spending front, food retailers, leisure-focused companies and housing-related stocks would all benefit. Names like restaurant operator Brinker (NYSE: EAT), leisure-oriented firms like Disney (NYSE: DIS) and Royal Caribbean Cruises (NYSE: RCL) and housing companies like Toll Brothers (NYSE: TOL) would all benefit.

If it becomes apparent that the GOP has a strong shot at winning back Congress in September or October, then shares could start to rally ahead of the early November election.