The Wave That Turned Into A Ripple: The Story of The US Mid-Terms – By Daniel Gauci

The stage was set – the battling cries of the Republican and Democratic parties have been drummed into the ears of the American voters, at the sound of millions of dollars of campaign ads, and grassroots activism. Lots of talk about mobilising the base has drawn one of the highest turnouts in mid-term election to reach an estimated turnout – one hundred thirteen million voters; a sharp jump from the 2014 one – eighty-three million voters. Live time coverage on channel news was exponentially increased from a few hours to full-day live coverage. The question we ask ourselves is:  why has this election drawn so much attention? What has changed from previous similar elections? And what are the stakes for Americans and the wider global economy?

This was the first test for Donald Trump on a state-wide election therefore whatever happened,this was set to get a higher level of attention, viewed as a vote of confidence in the leadership of Donald Trump. It is clear that the Republican party of 2016 which was strongly against the leadership of Donald Trump has now almost entirely turned behind their man, with those against resigning or being ousted. This consolidation of power reduces the hurdles for the President, leaving only one opponent in US politics – the Democratic party.

On the basis of the public vote,it is clear the Democrats have made a comeback from their abysmal performance in the 2014 Mid-Terms, consolidating the advantage they had in the Presidential election of 2016. Let us not forget that the Democratic nominee – Hillary Clinton – got the majority of votes in the Presidential election- an odd fifty-two million votes against Donald Trumps forty-seven million votes. In the popular vote of this year’s mid-term elections, the Democrats were up by eight percentage points over their fellow Republicans.

So what has turned the blue wave into a ripple? Why do we have a “Split Result”? The Democrats have managed to claw back Congress from the hands of Republicans by a majority of circa thirty-four seats. This gives Democrats a strong arm, in what makes it into law and greater oversight over the President. In the case of the Senate, one must understand that not all seats where contested in this election, as Senate election are split in two. It is also true that the strong majority who gave a majority to the Democratic party in Congress also voted for Democrat candidates in the Senate. The second reason for this “Split Result” lies in the fact that small states such as Wyoming tend to have a similar amount of seats,as more populous states like California.

In the current political setting, the churning of US policy can either grind to a halt whereby both houses are unable to pass on legislation due to political gridlock, or else we can see a rise of bi-partisanship which,despite being more unlikely than the earlier scenario,would be the desired outcome. For both Republicans and Democrats,the latter scenario would be counter-productive for their hopes of the 2020 Presidential election,and therefore this kindles some hope for bi-partisanship which has gone missing in the recent two decades.

The issues we can expect to see progress upon which will be of impact to the American economy are the strengthening or revising of the Medicare bill.  Initially Republicans wanted to outright abolish this, but due to the adverse impact of following such strategy,they have (after initial policy gaffes)resorted to start refining the initial version of Obamacare, upon which they will find support from the Democratic Congress.  This should lead to strong interest in the healthcare, insurance and pharmaceutical sectors.

Another issue in which we can see progress would be Infrastructure, which was a major promise during Donald Trump’s campaign. There should be consensus towards giving the infrastructure in the US a much needed re-vamp which would require spending hundreds of billions in upgrades and new developments. Over the years,the US has held back from investing seriously in it’s infrastructure,and collaborating on this issue can be envisaged as it would be a win-win situation for both Republicans and Democrats.

What will surely be less likely to attract bi-partisan support are issues including the construction of a wall with the Mexico border to stem migration, despite Democrats may agree on reforming immigration law if they deem they could sell any new legislation to their multi-cultural base. Another issue which will flare the attention of many will be the nomination of two judges to the US Supreme Court which will be in the spotlight, especially after how the Kavanagh confirmation played out.  Additionally,further tax cuts could be excluded after the backlash the tax-bill caused.

The result of this election should be a welcomed development for markets,as this should prevent some of the more radical policy ideas of the President from ever becoming reality. Similar to what happened to the Obama administration in 2014 following Republican wins in both the house and senate,this could also mean that not much in terms of legislation is enacted between now and 2020, as gridlock ensues. Investors would welcome the market bell-weather of the final leg of the Obama Presidency which consisted of an extended bull market, and weak levels of market volatilty. The road to the real race, that being the 2020 Presidential election,starts from here, in November 2018.  We are sure that the road ahead will keep us entertained till the time comes.

This article was prepared by Daniel GauciHnD Management, CeFa Investments, an Investment Advisor at Jesmond Mizzi Financial Advisors Limited. This article does not intend to give investment advice and the contents therein should not be construed as such. The Company is licensed to conduct investment services by the MFSA and is a Member of the Malta Stock Exchange and a member of the Atlas Group. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For further information contact Jesmond Mizzi Financial Advisors Limited of 67, Level 3, South Street, Valletta, on Tel: 2122 4410, or email [email protected]; https://www.jesmondmizzi.com