Last week’s elections produced a wave of Republican victories, with the US senate reverting to GOP control. Although not enough to enact a full-scale conservative agenda with secure veto/filibuster-proof votes, we think the results increase the likelihood of more business-friendly legislation being sent to the president on immigration, trade, energy, and taxes. The Republican domination of state legislatures and gubernatorial wins are potentially more consequential. Democratic control of state governments has been reduced to 7 from 14, the lowest since the 1860s. We expect GOP-controlled state legislatures to enact pro-growth policies, which would likely be received favourably by financial markets, in our view.
Here is The Weekly View.
I certainly agree that most investors interested in the USA will favour the Republican victories and expect more pro-growth economic policies.
What has impressed me the most recently was the speed of Wall Street’s recovery following the short, sharp correction, confirming that underlying demand is still firm. Also, seasonally, US equities are stronger following the mid-term election, on average, especially if a Republican-led Congress is hoping to regain the White House at the next general election. You can see this in the first half of my PowerPoint presentation for the Markets Now, which was posted on Tuesday.
Lastly, monetary policy remains very bullish. Yes, QE purchases have ended but interest rates remain low and the Fed is unlikely to sell any of its purchases of US bonds anytime soon. You can see the accommodative result on this chart of Fed Bank Total Assets (FARBAST Index).Back to top