It is Over!
For investors, the most important outcome of the mid-term elections — they are over. Why? According to a recent academic study, since 1815 – yes 1815 – the months following a mid-term election typically show positive performance for equity markets. Usually, this performance carries into the early part of the following year. Time will tell whether this experience proves again to be the case.
Split Congress — Even Greater Noise
The split Congress — Democratic control of the House and Republican control of the Senate – means greater noise, if possible, and a deeper political deadlock in Washington. What does greater noise mean? With Democratic control, it gives subpoena power to Democratic chairs of House committees. The result will likely be a series of investigations of Trump and the Trump administration, potentially including an effort to impeach the President. If impeachment passes the House — not a certainty — the Senate will not likely go along. There will also likely be a focus on forcing Trump’s tax reports public. Finally, the long-awaited Mueller report will surface.
Split Congress — Economic Impact
The fiscal policy stimulus passed earlier this year will likely die off by the second half of 2019 and not be renewed. Any possibility of further tax cuts also died off yesterday. The lack of further fiscal stimulus should actually prove a positive with the already growing concerns about the rapidly growing budget deficit. With the likelihood that fiscal stimulus wanes, investors will likely look to economic growth returning to the more lackluster rates before fiscal stimulus and tax cuts took hold. As a result, it may put a damper on long-term interest rates and once again lead to a flattening of the yield curve.
With the House shifting to the Democrats and the strength of the Democratic vote showing up in the great lakes states, the Democratic nomination for president becomes even a more attractive prize. The campaign for that nomination started today. As the presidential nomination battle within the Democratic Party becomes more intense, the deadlock in Washington will grow even greater.
For the next year or so, the increasing political deadlock should mean little influence from Washington on the economic outlook. If correct, investors will likely focus on how the economic outlook influences interest rates and earning fundamentals of particular industries and companies. The one caveat — the known unknown from the trade war.
The information contained on this website is not intended to be used as the sole basis of investment decisions and is not a recommendation nor a solicitation to buy or sell any securities or investment. It is intended to be informational and educational. The information provided should be used as a general guide to investment performance. Past performance is no indication or guarantee of future results.
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