All-in-all, the midterms went as most expected. While the Democrats were able to win control over the House, the Republicans kept the Senate. This was reassuring for many investors, and the market was able to open higher on Wednesday. Though the Democrats may not have the House yet, the Republican influence in the Senate is seen as enough to at least temporarily stabilize the economy. However, this has also made investors wary of the upcoming 2020 elections… and it may have some ramifications for the economy overall.
Historically, a divided government is seen as harmful for the economy. Gridlocked legislatures make it difficult for the government to act. Actions that are taken by the president are now far more likely to be blocked by Congress, and it’s difficult for investors to anticipate what that could mean for new government initiatives.
Notably, it’s believed that the newly Democratic House may take issues with some of the decisions that the president has made regarding trade agreements. If this does happen, the economy could be impacted significantly — but whether that’s favorable or negative remains to be seen.
Despite this, the markets rose following the midterm elections, with some analysts hoping that a Democratic House may be able to smooth things over with China and reinvigorate trade with the country. The ramifications of the trade war with China have already been felt strongly in some markets, including the soybean market — which lost nearly 90% of its revenue due to a new 25% tax.
It will likely be some time before investors are able to see the true impact of the midterms, as the impact rests in the fact that the president is now unable to pass legislation unhindered. Any item of legislation the president attempts to pass will go by the now Democratic House, unless the president is to rely upon executive orders.
What is very likely is that growth will slow due to the upcoming political gridlock, though it’s also possible that this growth may stabilize a currently volatile market.
President Trump has made many changes that have been generally favorable to businesses and even self-employed individuals, including adjustments to taxes. Another tax cut has been promised to the middle class, though it’s unknown what the tax cut would be, or whether it would be substantial. However, with a Democratic House, these tax cuts may not pass even if they are initiated — and may not last past the 2020 election.
All of this introduces a certain level of uncertainty, as many aren’t sure what legislation will be able to pass, or what legislation will still be upheld if the administration shifts to blue in just two years.
Ultimately, many investors become nervous when the government tilts towards the left, as the left tends to have less business-friendly policies and more economic regulations. The sweeping of blue across the midterm elections could potentially indicate that a strong Democratic challenger will appear for 2020, which could additionally complicate matters for investors. At the same time, the economy has rebounded quite well from prior concerns, and it remains to be seen what impact the Democratic House may bring.
Investors are right to be wary for some time, as it’s difficult for even experts to determine how this will ultimately play out. With the market on the precipice of a crash regardless, it’s likely that there will be interesting times ahead — especially for high-risk, high-reward investors.
Regards,
Ethan Warrick
Editor
Wealth Authority
