2018 US Midterm Elections

November 6, 2018 was election day and the results are in! Believe it or not, November 7 starts the cycle for the Presidential election in 2020!  We thought you might enjoy an update on what impact the election results may have on the economy.

As a recap, we now have a split Congress with Republicans expanding their majority in the Senate and Democrats taking the House. We also saw a number of Gubernatorial races settled with Republicans winning key races in places like Florida and Ohio. What does this mean for policy and markets? In listening to a PIMCO presentation on this topic, they spoke about the 3 “I’s”

1. Infrastructure – Democrats in the House will push for increased infrastructure spending. However, there will be little to no consensus across party lines on where the increased spending will come from (i.e. budgetary issues) or what the money should be spent on.  The likelihood of a large stimulus bill is low.
2. Investigations – with the subpoena power of the House, we can expect to see investigations into President Trump and his administration. While this may not impact the economy directly, the investigations can certainly be distracting to the administration.
3. Impeachment – will the House try to impeach the President? Similar to the investigations, it may not have a direct economic impact, but it can/will be distracting.

Trade policy – trade policy risk will continue as the President has extensive authority in this area. Will there be a full-fledged trade war, trade peace, or something in between? Obviously, the answer to this question may have a major impact on markets.

Tax reform – we likely won’t see more reform as there likely won’t be agreement between both parties.

Fed policy – there should not be any change to Fed policy based on the election results as the Fed is independent. Economists are still expecting another rate hike in December and two more rate hikes in 2019.  The Fed's next meeting is November 7-8 and Fed watchers are not expecting much new information to come from this meeting.

As a reminder, try not to trade around major market news. Generally, we encourage trading between 10 AM -2 PM ET if there are no warning signals in the financial news (words like “panic” and “crash” come to mind) or major market movements.

Prepared by Mario Nardone, Head of XYIS Investment Committee

As always, please email support@xyinvestmentsolutions.com or call (360) 301-7579 with any questions.