- Pro-growth policies, specifically tax cuts and deregulation are safe. These policies have been widely cheered by U.S. companies and equity markets alike. So-called Tax Cuts 2.0 are dead but were not expected as last night’s results and subsequent gridlock was anticipated.
- There was an expectation among analysts that if Republicans retained control of Congress, single party control would translate to higher government spending than a split Congress. Increased government spending could cause inflation and rising rates. After last night’s results there is an increased belief that interest rates will grind higher as opposed to exploding higher.
- Removal of uncertainty. Last night’s results were widely expected yet markets are rallying today. Markets despise uncertainty, while the election results were anticipated simply removing it has been a short-term boon. Additionally, gridlock removes uncertainty surrounding more partisan policies, something that the equity market is likely to welcome.
We recently wrote about the historical impact that Midterm elections have on the stock market. That article can be read here: http://blog.bluebellpwm.com/blog/midterm-madness