The results of yesterday's US midterm elections played out much as pundits forecast. President Donald Trump’s Republican Party retained control of the Senate, but lost control of the House to the Democrats.
The election fell far short of the wholesale repudiation of President Trump that Democratic activists had hoped for. However, the results were in line with Wall Street expectations and investors had positioned themselves accordingly. Dow futures were up nearly 200 points as the uncertainty about unpleasant surprises was removed.
The big question for markets going forward is whether the congressional gridlock that's likely to follow will significantly thwart administration policies or dampen the economy. The US dollar declined amid prospects for a less stimulative policy under a split Congress.
Americans tell pollsters they prefer a divided government, with the White House and/or the two houses of Congress split between the parties. In the past this meant compromise on big issues, though recently it has only meant gridlock.
If Democrats can overcome their aversion to the President, however, there is room for compromise and cooperation on infrastructure spending and even healthcare reform. There could, however be complications going forward on trade deals or any softening of regulations on such industries as finance or energy.
Trump’s legislative achievements in deregulation and tax cuts would be difficult to roll back, however, given the Republican majority in the Senate and the president’s veto power. Investors will be paying attention over the next few days, in search of clues as to how the Democrats intend to proceed.
It is far from certain that Tuesday’s victories will assuage Democratic outrage over Trump’s 2016 win. But it will be hard for the Democrats to maintain their gains or win the White House in 2020 if they only have gridlock to run on.
In her remarks on election night, Democratic floor leader Nancy Pelosi called for a bipartisan approach to legislation and ruled out any initiative to impeach the president.
With the midterms over, attention will now turn almost immediately to the 2020 presidential race, with Democratic aspirants jockeying in earnest over the next year to position themselves for primaries.
Networks forecast the House swing this election to be as much as 35 seats, 12 more than Democrats needed to regain the majority. The final count at time of writing shows a 26 seat gain. By historic standards, it is a relatively small swing and a slim majority.
Republicans held the Senate and were on their way to adding one to two seats to their 51 in the 100-member upper house. The President campaigned intensively in states such as Missouri, Indiana and Florida, where his party picked up Senate seats. Keeping Senate control means he will be able to get confirmation for his appointments to the cabinet and judiciary.
Democrats spent vast amounts of energy and money on the House races and the election brings many new faces into Congress, reminiscent of the Republican Revolution under Newt Gingrich in 1994 and the Tea Party revolution in 2010. Whether many of them will get re-elected in 2020 depends on what the party does with its majority.