After two years of complete Republican control of the US government, the party will be forced to share power after the Democrats won back the House of Representatives.
Outcomes, implications, expectations
Looking at the potential effect of US policy changes
Do midterms matter?
Assessing scenarios, key political factors, and likely market impact
Democrats take the House
With results still coming in, the Democrats look set to gain more than 30 seats in total, more than the 23 they needed to control the chamber. This result was in line with the historical average number of House seats lost by the president's party in mid-term elections.
Republicans keep the Senate
Republicans have increased their majority by a handful of seats, making it easier for President Trump to secure approval for future judicial appointees and cabinet nominees.
Gridlock develops, requiring compromise to pass most major legislation. Democrats launch myriad investigations against the Trump administration.
President Trump continues to use executive actions to loosen regulations, and to use tariffs to pressure trading partners.
Neutral for risk assets.(Base case)
Gridlock, with pockets of compromise – Without common ground on areas to cut spending, the budget deficit remains higher than usual, putting upward pressure on long-term government bond yields.
Infrastructure is one area where President Trump and Democrats may find common ground, but they tend to disagree on size, substance, and funding. This would be a modest positive for risk assets (especially a basket of infrastructure-related companies), but add to pressure on bond yields and the US dollar if the package is largely deficit-financed.
Government shutdowns are likely in this scenario, but markets have historically shown very little reaction to these episodes.
Drug price controls are a possible area of compromise, and would weigh on global pharmaceuticals.
- Government shutdown
- Regulatory relief continues
- Drug price controls
- Supreme Court freeze
- Impeachment (but removal unlikely)
- Debt ceiling showdown
- Obamacare repeal
- Entitlement reform
- Tax reform 2.0
- Border wall
- Congress constrains trade authority
Frequently asked questions on midterms
We expect limited impact overall, largely due to the limits on passing legislation in a divided government. There are two "swing sectors"—financials and industrials—where we see a modest impact from political issues over the next two years, but politics isn't everything, and these aren't acute enough to override fundamental drivers.
Democrats previously campaigned on the promise of investigations, and key party leaders downplayed talk of impeachment as 'premature.’ That will change if their investigations — or the special prosecutor's report — identify charges that fit one of the Constitution's parameters: 'treason, bribery, or other high crimes and misdemeanors.' While impeachment in the House is possible if Democrats capture a majority in that chamber, Democrats would need to curry significant Republican support to convict President Trump in the Senate — an extremely unlikely outcome given what we currently know. Even so, we don't believe that this extremely unlikely outcome would represent a market risk.
Many international investors watched the 2018 midterms with the hope that Congress will rein in the Trump administration's more aggressive trade policies. However, this looks unlikely. We don't expect Democrats to push back against the president if it looks like he's winning. That being said, there is a possibility that they will seize upon a political opportunity to rein in the Trump administration if it looks like he's made a misstep in negotiations or if there is a sizable negative economic impact.