Below are some quick takeaways from the midterm election results.
Politically
- The results were largely as expected with Republicans gaining in the Senate and Dems taking the House; this is probably why the market was up – no surprises
- Trump will claim victory (and is) as there is a perception that Republicans did better than expected and in the key races he focused on, the candidates did well
- Likliehood that you see more House investigations into Trump (but he’s already pushing back on that this may not be a fight they want to pursue too aggressively)
- We saw an even stronger division between blue / purple urban voters and rural red voters
- Setting up for an epic 2020 election with populism on the left squaring off against populism on the right
Legislatively
- Despite all the partisan chatter, new members to the House will want to get something done in their two years; we think movement / compromise in a few areas:
- Drug prices – Trump and the Dems agree that drug prices need to go lower or be more controlled, this one has legs
- Anti-trust – Scrutiny if not enforcement has real legs as this is a populist issue
- Healthcare – Legislation on surprise medical bills and greater pricing transparency is an area of compromise
- Infrastructure – Trump wants to pass this but was impossible with Republicans in both houses, much higher probability now
- General point, we don’t buy the gridlock myth . . . while there won’t be sweeping changes or legislation . . .history tells us a lot could get done
Economy and market
- Democrats can’t undo tax cuts, but they can slow the pace of regulatory reform
- We don’t buy this idea that markets will necessarily outperform or perform will because Congress is split and/or it is a midtem
- Bigger issue will be that the economy has peaked or is peaking, and is set to slow into 2019 and beyond in an environment where the Fed is raising rates
- As it relates to the stock market, we see this midterm as largely a non-event and economic gravity will be, for lack of a better word, the Trump card
- Key sectors we like – Consumer Staples, Utilities, Treasury bonds at a price; Key Sectors we’d sell – Pharma, Tech (especially high beta and monopolistic), and Industrials
