Early election response: It does indeed look like the DEMS far exceeded expectations - more than just picking up the 15 seats they needed to regain control of the House. At last count, it was 227 DEM, 191 GOP and 17 undecided. In the Senate, so far it is a draw at 49-49, but the two states still counting (Montana and Virginia) show the DEMS ahead by about 1% (in the event of a 50-50 draw, VP Cheney would get to make the choice as to which party would have the majority). Not only that, but the 36 gubernatorial seats that were up for grabs also went Democrat (the GOP went in last night with a 28-22 majority - it now looks like the DEMS have a majority). Taking the majority of the governorship houses is a big deal because (i) it sends a message to the DEMS that they have a mandate to push for change at the legislative level, and (ii) this will come to play in the 2008 elections as governors can often play a big role in getting out the regional vote (as it did for Mr. Bush big-time in 2000). The exit polls show that the Independents supported the DEMS by a 20- point margin, which was way above expected and again will signal to the DEMS that their support was broadly based.
So we had a huge DEM victory, with big voter turnout and no voting irregularities to speak of - but the Democratic leadership, led by Nancy Pelosi who is very likely to be the next Speaker of the House, is probably going to read both the big voter turnout and the success of the party as a mandate to try and invoke political and economic change - the question is whether the President is getting the blotter out for his veto pen (Pelosi's "Six in '06" platform called for Congress to quickly raise the minimum wage, cut interest rates on student loans, roll back subsidies to oil companies, boost spending in stem-cell research and strengthen homeland security).
The reason why gridlock worked under Reagan (1986 tax code change) and Clinton (1996 welfare overhaul) was because they were willing to cross the aisle and work with the opposing party. So it's not that "gridlock is good"; it's more that "compromise is cool". Whether or not we actually have really had "gridlock" under two-party rule is debatable, but what we didn't have was "stalemate" - we are hard- pressed to believe that rudderless leadership is actually good news for the economy or the markets. As the front page of the WSJ questions: "will Mr. Bush suddenly change his one-party governing style to reach out to Democrats? And will they in turn reach accommodations with the president and avoid stalemates in Washington?"