Midterm Election Takeaways

Midterm Election Takeaways

Ignoring the politics (I’ll leave that to others far more intelligent than I), there are a few potential market takeaways to monitor now that the Republicans will control the 114th Congress (undoubtedly some clients will call asking what the mid-terms mean for the market, and I want to provide some talking points).

First, all the major players meet tomorrow at the White House (Obama, McConnell, Reid, Boehner, Pelosi), but nothing is expected to come out of the meeting other than lip service. AS far as evidence the government may start actually functioning again now that the elections are over, the first major hurdle to watch is immigration. If President Obama uses an executive order to provide amnesty to illegal immigrants and go around Congress, then it’s likely the next two years will be as contentious and useless as the previous two from Washington.

And, while that won’t necessarily cause a market decline, the market would like to see some positive action on corporate tax reform, the Keystone Pipeline and a rollback of some parts of the “Affordable Care Act.” If Obama unilaterally moves on immigration, the chances of any of the above going forward will be materially reduced. Again, it won’t be a market headwind per se. But fixing the corporate tax, approving Keystone, removing the ban on oil exports and changing the ACA would be a positive for the market.

Outside of those policy issues, we also need to consider the impact of a Republican Congress on the Fed. Rand Paul already has legislation to audit the Fed in Congress, and there have been specific requests made by Republicans for a detailed plan on how the Fed plans to normalize interest rates. Bottom line, scrutiny of the Fed could increase materially under a Republican Congress, which could make the process of normalizing policy more difficult.

Bottom line, Washington remains on the back burner from a market standpoint and will remain so until the beginning of next year when the new Congress is seated, barring an executive order from Obama on immigration. But, I think it’s safe to say that this relative quiet we’ve seen from Washington throughout 2014 won’t be repeated in 2015. If the anticipated levels of foolishness from Washington were a chart, it just bottomed.

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