The signs of a blue wave are slowly adding up. In recent weeks, President Donald Trump has been on the forefront trying to prevent a Congressional flip to the hands of the Democrats. According to many forecasters, there is likely to be a blue wave on November 6th.
The midterm elections will mark the half term of Trump’s presidency. This could see the end of the Republican control the Senate and House of Representatives. Should this come into fruition, the promises the president made during the campaign period may be impaired.
Why it matters
If the Democrats win the house this midterm election, they could eradicate all the gains and progress made by President Trump’s administration. While it’s not clear which party will be benefiting from the early voting, we could see numbers closer to that of the presidential election. However, this should not be a surprise. Since the 1950s, the president’s party always loses at least 24 seats in the midterm.
What implications does this have on investors?
Each of these results could pursue different policy initiates. Here is what we expect in each scenario.
If the Republicans keep the Senate and the Democrats take over the House
The overall stock market would be bullish. This is because a divided government will make it hard to make policy initiatives. When it comes to health care, the republicans and democrats may find it hard to find a common ground. A divided Congress would prevent major regulatory changes in the pricing of drugs. Other than that, the lawmakers might find it hard to reach a consensus when it comes to infrastructure development.
If the Democrats take over the Senate and the House
The overall stock market will be bearish. The Senate would pursue the same policies mentioned as their priorities. Additionally, they would pay special attention to legal protection for young immigrants brought to the U.S and lower the drug prices. It could also be a good sign for infrastructure. However, the bank sector would suffer. This is because the Democrats will pursue a tighter regulatory regime. In a nutshell, we could see sector-by-sector moves.
If the Republicans keep both but with a narrower house majority
The overall stock market will be bullish. Furthermore, there will be an additional 10% tax cut on middle-income earners. However, we could see the U.S economy overheating in the long term. The key factor in determining how many seats are taken will depend on party polarization in the short-term.
No matter how the mid-election goes, President Trump will lean more on trade protection. Many polls suggest that 43% would vote Republican while 51% would vote in favor of Democrats. Should this transpire on Tuesday, we’re likely to see a blue wave.