The House of Representatives has flipped to Democratic control and Republicans added to their Senate majority, in line with our base case predications. While this was an expected outcome, the results expose the political divide that exists in American politics, which will have a significant impact on the upcoming agenda. The better-than-expected Senate results for Republicans will be a significant boost to Trump’s deregulatory agenda. On the legislative agenda, an infrastructure bill, drug pricing bill, and investigations lead the Democratic agenda in the House, potentially opening the door to some surprising bipartisan compromises in 2019.
What Happens Now?
The immediate pivot will be to China trade and the Mueller investigation. We do not see any reason these election results will change President Trump’s position on trade issues, and the probability of sustained negative Mueller investigation headlines could cause Trump to take bold action to change the press narrative. This will add to near-term volatility.
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