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The 2018 Midterms Cheat Sheet and What It Means For Markets

The United States Capitol and reflecting pool in Washington, DC.

Last Night’s Results

In a campaign season where voters witnessed everything from migrant caravans and Kavanaugh hearings to the Overland Park Jewish Community Center shooting and 13 pipe bombs mailed out to prominent Democrats and Trump critics, the bulk of the results are in…

• Republicans have maintained control over the U.S. Senate
• Democrats won control over the U.S. House of Representatives
Click here to view live results for the 36 governor’s races on the ballot in the 2018 midterms

In a new era led by women – think the #MeToo movement and January 2017’s historic “Women’s March on Washington” – this year’s midterm elections cycle produced a surge of female political candidates. Data shows nearly double the number of women ran in Senate, House and Gubernatorial 2018 races than in 2016.

Women and Latinos contributed heavily to last night’s Democratic victory in the House. In national CNN exit polls, 59% of female respondents voted Democrat while only 40% voted Republican. Sixty-nine percent of Latinos voted Democrat and 29% voted Republican.

Click here to view some of the notable wins among women that powered the Democrats retaking the House.

Republicans avoided a “Blue Wave” in the Senate and pushed out four incumbent Democrats: Bill Nelson in Florida, Joe Donnelly in Indiana, Heidi Heitkamp in North Dakota, and Claire McCaskill in Missouri. Jacky Rosen picked up a seat from Republican incumbent Dean Heller in Nevada. As of 4:18pm (11/7/2018), the Senate race in Arizona between Martha McSally (R) and Kyrsten Sinema (D) was still too close to call.

PBS NewsHour BOP
Click the image to the left to view Live Results for Congressional races, provided by PBS News Hour. You can filter their interactive map by balance of power, margin of victory, seats flipped, income, voting history and state.

 

 

What We Can Expect from Democrats

The Democratic Party has a list of priorities it seeks to achieve leading up to the 2020 U.S. presidential election. Their legislative agenda includes an ethics reform package that addresses campaign finance reform and potential voter suppression. Further, the party sees opportunities for bipartisan cooperation on issues such as infrastructure and reducing the prices of prescription drugs. Above all else, healthcare has dominated the conversation as a bread-and-butter issue for most Americans. The Democratic health care agenda speaks to the preservation of Medicare healthcare programs for senior citizens and maintaining of insurance protections for people with pre-existing conditions. A Reuters poll, points out that when asked, “Which party has the better plan for healthcare,” 44.6% of respondents said the Democratic Party, and 32.6% said the Republican Party.

There is a high probability that Nancy Pelosi, who made history in 2007 as the first woman to serve as speaker of the U.S. House of Representatives, will return to her previous post. In her victory remarks during the Democratic Congressional Campaign Committee (DCCC) Election Night Watch Party she declared, “We have a responsibility to find our common ground where we can, stand our ground where we can’t, but we must try.” Others believe both sides of the aisle will play a role in a gridlocked Congress that is split between a Democratic majority in the House and a Republican majority in the Senate.

Lastly, Democrats in the House will rise to chair 21 committees, including the Committee on Oversight and Government Reform, which will likely be chaired by Maryland Rep. Elijah Cummings. The House Permanent Select Committee on Intelligence is another group to watch as ranking member and likely chair, Adam Schiff, will supersede the current Republican chairman from California’s 22nd District, Devin Nunes. Incoming chairs will almost certainly apply pressure in key areas they feel were neglected by Republicans in 2017 and 2018. Several congressmen and congresswomen have hinted the House intelligence and judiciary committees will be in the spotlight surrounding investigations about possible business conflicts of interest, and possible links between President Trump’s 2016 election campaign and Russia. Plus, the Ways and Means Committee will most surely make a push for Donald Trump’s tax returns. From a foreign policy standpoint, Democrats will attempt to halt the friendly posture taken towards Saudi Arabia, Russia and North Korea, and soften U.S. policy toward countries like Iran.

What We Can Expect from Republicans

The 2018 midterm elections were largely viewed as a referendum on President Donald Trump, but the President and many Republicans have a rosy outlook compared to others who view last night’s election results as a loss.

Trump tweet (11.7.2018)

Prior to the 2018 midterm elections, Republicans had little incentive to compromise as they controlled both chambers of Congress. Despite differing views, Republicans must now reach across the aisle to pass meaningful legislation for the American people. Senate Majority leader Mitch McConnell (R-Ky) is already reaching out to Democratic leadership to carve out a way forward in this tumultuous political climate. “Over the course of last night and then this morning I talked to Leader Pelosi. We discussed ways we might be able to find a way forward,” McConnell told reporters. He added, “We’re not unfamiliar with each other and we’ll probably have a lot more dealings with each other in the future.”

What’s ahead for the Republican agenda:

• Getting conservative judges through confirmation proceedings to fill vacancies around the country.

• Improving the nation’s infrastructure.

• Proposing additional tax cuts for the middle class and making tax cuts permanent (unlikely with a Democratic-controlled House).

• Bringing down the cost of prescription drugs.

• And of course, “building a wall” as part of a more comprehensive immigration package.

We can expect Democrats to scale back President Trump’s legislative ambitions, but there may still be room to find common ground.

Outside of legislation, the Trump Administration is likely to shake up the White House as well as other key posts. In breaking news, attorney general Jeff Sessions resigned this afternoon and will be replaced by acting attorney general Matthew Whitaker.

What the 2018 Midterm Election Results Mean For Markets

The economic and financial implications of the 2018 midterm elections are now live and in full effect. Many economists believe the positive effects of the Trump economy will continue into next year.

Trump Scorecard- GDP

DESIGN: NICK DESANTIS, FORBES STAFF

Trump Scorecard- S&P500

DESIGN: NICK DESANTIS, FORBES STAFF

However, there are some key events set to occur in 2019 that could derail markets, even if only temporarily:

• The United States-Canada-Mexico Agreement (USCMA) – the agreement that replaced NAFTA – has yet to be put up to a vote, and with Congress no longer controlled solely by Republicans, the USCMA can bleed into the domestic political realm as a negotiating piece.

• Congress will have to raise the debt ceiling yet again in March 2019 and we all know too well the volatility that can be associated with this type of event.

• There is existing bipartisan support for the curtailing of China’s alleged theft of U.S. intellectual property and the U.S.’ enormous trade deficits, but a further fracturing in the US-China relationship can also disrupt supply chains and increase costs.

• Any talk of impeachment might have an immediate negative impact on markets, but Pelosi is unlikely to pursue this option with a Republican-controlled Senate.

On the brighter side, improvements in the nation’s infrastructure could provide an additional boost to the U.S. economy. It remains to be seen what effects potential gridlock in Congress will have on policy.

Gina Heeb of Markets Insider wrote a great article titled, “Here’s what Wall Street is saying about the midterm election results.” The article lists interesting quotes from top economists and investment strategists in the financial services industry, and outlines their views on the economy and markets post-midterms. 

Categories: Political

Christopher Elliott

During his previous eight-year career track as a financial advisor, Chris learned the principles of investment management and holistic financial planning. Over time, he shifted his talents to marketing but remained in the financial services industry as he knew so well the important work financial advisors carry out on behalf of their clients to help them achieve their financial goals. Chris is part of the American Marketing Association (AMA). He enjoys translating macroeconomic, geopolitical, and market events into meaningful content for the general public.