Instead of chaos and violence, reports so far are that the elections largely went off smoothly. Instead of widespread gains by Republican candidates, the election seems to have been largely a draw.
With a number of races still not final, the most likely outcome looks to be a Republican-controlled House, with a very narrow majority, and either an evenly split Senate, resulting in Democrat control, or possibly a 51-seat Republican-controlled Senate. Yes, there were some surprises on both sides. But when the dust settles, the net change in the number of seats held by each party looks to be fairly small.
Economic and Market Results
Politically, those small changes could have large effects. But the economic results are likely to be much less. That tight of a split in both houses of Congress will constrain any policy action and will almost certainly prevent any veto overrides on laws that do get through. So, we will not see anything even vaguely controversial in this Congress, which means we pretty much know that current fiscal policies will remain in place: no tax cuts and no major spending bills for the next two years. For better or worse, that gives some certainty around a significant part of the economic playbook. And that is a good thing, from a market perspective. Markets hate uncertainty, and the mid-terms with their prospects of both unrest and potential systemic policy changes have been a worry. Now that worry is resolved.
A Valuable Day
That is a positive sign for the future. Historically, markets have tended to underperform in mid-term years, but then pick up after the elections. We have certainly seen the former and can now hope to see the latter as well. With both political and fiscal policy largely off the worry list for the moment, we can now return to more purely economic concerns.
Brad McMillan is the chief investment officer at Commonwealth Financial Network, the nation’s largest privately held Registered Investment Adviser-broker/dealer. He is the primary spokesperson for Commonwealth’s investment divisions. He is also the author of Crash-Test Investing, a must-read primer for Main Street investors seeking to help insulate their portfolios against a market crash. This post originally appeared on The Independent Market Observer, a daily blog authored by Brad McMillan.