The Midterm election results have left the US with a Democrat majority in Congress, while Republicans maintain control of the Senate.
In real terms this has meant European stocks trading up and US stocks up sharply in pre-market trading – with the DOW Jones industrial average up more than 200 points in early-morning futures trading and US bond prices also on the rise.
The result however, was widely expected by Wall Street, who feared a ‘blue wave’ that would have upset President Trump’s economic policy package. Instead, analysts are saying that a policy ‘gridlock’ is to be expected and while Democrats will have trouble reversing Trump’s tax cuts and business deregulation, Bankrate.com senior economic analyst Mark Hamrick has said,
“House Democrats will turn up the pressure on President Trump through investigations and oversight”.
Analysts from Rabobank stated that, “Foreign and trade policy is to a large extent the prerogative of the President, hence Trump will maintain considerable control, despite the Democratic majority in the House of Representatives. However, for the ratification of international treaties, he will need the approval of the House Democrats.”
“In contrast, domestic policy is made in Congress, hence a Democratic majority in the House is likely to lead to gridlock. Infrastructure spending could be one of the few feasible policy options.”
Overall, it is expected that the midterm election results will have a modest positive impact on markets, as the result was not only in line with market predictions, but past House gridlocks have not been detrimental to markets.
Edward Jones Investment Strategist, Kate Warne, said that “a split Congress means that gridlock is more likely, and that’s been fine for markets in the past”.
Further, elections are noted to be a time of market uncertainty and thus passing an election by relatively unscathed can only be good news.
