The stock market reacts to all political moves, and midterm elections were no different. Investors expected the Democrats to take the house and the Republicans to retain the Senate, and that is exactly what played out in the United State Midterm Elections of 2018. The result was a little more confidence with market opening slightly higher the day following the elections.
While the immediate future is looking good, for the markets, the Democrats taking the house signals a distinct possibility of more Democratic hopefuls for the 2020 Presidential Elections which causes a bit of uncertainty. Under Republicans, capitalism flourishes and businesses are often far more optimistic. This leads to more confidence and investors tend to throw more money at the markets. With Democrats in power, there are often more policies that slow the markets and business growth down, and with it is a real uncertainty which often causes investors to slow down, sometimes even pulling out of the market.
With the Democrats now controlling the House, investors are left guessing which of President Trump’s policies will pass and which ones will be blocked by the Democrats. For example, it is likely that Democrats would agree and pass a deal that would lower the cost of prescription medication, but they will throw a roadblock at any type of overhaul of the Affordable Care Act. Another example is the Democrats likely agreement with the President that an infrastructure bill should be passed, but when it comes to financing that bill, there is little chance of coming to any agreement. Any sort of infrastructure bill would offer a boost in the tech and industrial sector, two areas that sagged in the month leading up to the midterms.
Another important topic that the Democrats could effect is the continued trade war with China. The tariffs have affected businesses within the United States, the tariffs have caused higher prices for materials which in turn will trickle down to consumers. While the trade war has been widely debated in Washington, it is unlikely that Democrats will end it because typically, Democrats are apprehensive when it comes to free trade and would likely favor a stronger line when it comes to trading with China.
For now, investors are hoping to capitalize on the bull market while it lasts, expecting that it will soon slow down and begin to loose the continued growth over the past two years. For more detailed information on this topic, click here.