The result of the midterm elections that handed control of the House to Democrats is likely to trigger a U.S. and global financial markets bounce, on relief that President Trump’s scope for waging trade wars will be limited by a divided Congress.
But gridlock in Washington will stall the White House’s bid to deregulate banking and industry, so limiting the relief rally.
Meanwhile, the Democrat flip is “unlikely to bother President Trump too much.”
It’s the analysis from the CEO of one of the world’s largest independent advisory firms following the Democrats turning the lower house from red to blue.
“The Democrats gaining control of the House of Representatives is likely to drive a rally in U.S. financial markets into the year-end,” said Nigel Green, founder and chief executive of deVere Group. “This U.S. bounce can also be expected to positively impact global financial markets, given the high correlation between Wall Street and risk assets elsewhere.
“However, it can be reasonably assumed that this rally will be relatively short-lived as it could then be offset by legislative gridlock in Washington. This will halt deregulation legislation, which in turn will hurt sectors such as banking, energy, industrials and smaller companies that stood to gain most from looser controls. Pharmaceuticals may suffer as the Democrats seek to bring down drug prices.
“The gridlock also means that fiscal policy will largely be maintained as it is, with no significant changes to spending or taxation.”
deVere’s Green goes on to conclude, “This might look like a defeat for Donald Trump, but the reality is that he might not mind losing the House of Representatives too much.
“In this situation, he could feasibly then attribute blame towards the Democrats should the economy falter and they refuse to pass more tax cuts to boost demand.”
