Donald Trump’s plans for infrastructure spending and tax cuts will be “curtailed” now Democrats control the House of Representatives
- Introduction: US dollar hit by midterm election results
- But shares rally as Trump has his wings clipped
- Live blog: Midterm elections 2018 latest
- Full story: ‘Blue wave’ sweeps Democrats back to majority in House of Representatives
Here are five lessons for investors from the midterm elections, from Neil Wilson of Markets.com:
Aaron Anderson, senior vice-president for research at wealth manager Fisher Investments, argues that the prospect of political gridlock is actually good for shares.
Legislation was hardly flying through Congress before midterms. Now with Democrats controlling the House of Representatives, the GOP increasing its majority in the Senate and President Trump in the White House, it will be nearly impossible to pass anything remotely controversial.
That will drive many people crazy, but markets love it. We should now have a long stretch where political risks go way down, which should be good for stocks.”
Shares are roaring ahead in early trading in Europe, as investors react to the midterm election results.
In London the FTSE 100 has gained 80 points, or over 1%, to 7,119.
Having the president’s wings clipped by losing control of the House is helpful for avoiding the most obvious “end of cycle policy mistakes” – which in our view is pumping more deficit spending and protectionism into the economy, forcing the Fed to tighten at a faster rate.
With the US dollar weakening fast, the pound has gained half a cent to $1.314 – a three week high.
The euro has been lifted to a two-week high, at $1.147.
“Nevertheless, domestic political unrest may throw a spanner in the works for the dollar, as Trump’s relations with the Democrats will be essential in the coming months to determine the course of politics.
Potentially Trump, who was once a member of the Democratic Party, may manage to come together with the Democrats and agree on broad tax cuts for the middle class. This could be a boost for the economy and the dollar, assuming markets don’t start to fret about the increasing government deficit. Chances are higher that the Democrats will seize the opportunity to use their new control of certain commissions in the House to step up the investigations in Trump’s tax dealings, relations with Russia and claims of hush money payments.
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“We rebuked Trump and Trumpism at a critical moment,” Ilya Sheyman, executive director of the grassroots organisation MoveOn wrote in a celebratory email.
Many Democrats will be tempted to see the glass as half empty, engaging in self-flagellation over narrow defeats for some of its rising stars and a worse-than-expected loss of ground in the Senate. But the truth is that in the face of gerrymandering, voter suppression and an economy that continues to stay in the strong shape that Barack Obama bequeathed, the party reclaimed the House majority for the first time in eight years. That is no small achievement.
While not a great outcome for President Trump, it could have been worse. He clearly had plans to press on with infrastructure spending and further tax reform in the second half of his presidential term and while the policies are not dead, they are likely going to be curtailed or heavily revised by a Democrat-controlled House. Bi-partisanship will be required for progress to be made and for President Trump to generate a strong platform to defend his Presidency in 2020.
However, the US economy will face an increasing number of challenges over the next couple of years as support fades from the fiscal stimulus and weaker global growth (contributed to by President Trump’s trade protectionism), a stronger dollar and higher interest rates provide increasing headwinds. A weaker economy and potentially falling asset prices and household wealth would compound the problems for President Trump.