Unlike previous mid-term elections, this year was especially critical for the Republican-controlled US Congress as they are driving on the populist policies. Meanwhile, for the Grand Old Party (GOP), domestic economic conditions have been buoyed by low unemployment, reduction in corporate taxes, strong corporate earnings, and the generally mild inflationary conditions, among others.
However, the results of the midterms have shown that a growing number of Americans are dissatisfied with the manner in which the present administration handled various issues like domestic terrorism, immigration, and others. President Trump did little to help the Republicans to retain a House majority, judging by his low approval ratings of low-40 percent. The previous two US Presidents, Obama and George W. Bush, had much higher ratings of 60 percent prior to their midterms.
Democrats Regain The House
As expected, the election outcome turned out to be what is widely expected. Stocks in the consumer discretionary segment should perform well leading to end-2018 given that holiday season is around the corner. Meanwhile, with a Democrat-controlled House, the repealing of ‘Obamacare’ or Affordable Care Programme should be off the table and benefiting healthcare stocks.
Going forward, post-midterms Democrats will likely advocate for more tax reliefs for the middle-class households that form the bulk of the electorate. However, this would not drive US consumers to go after luxury goods sellers like LVMH, Prada, Tapestry, Limited Brands and Coach, among others. But rather, US consumers would use the extra cash to purchase smaller-ticket and non-luxury items like consumer electronics, officewear, and home decoration goods.
Similarly, with the continuation of Obamacare, along with the expansion of the Medicaid Programme to several so-called “red-states” like Idaho, Nebraska, and Utah, health care companies will be able to market their drugs to a potentially larger pool of recipients as the federal programme funds affordable health care treatments for the low-income households. That said, margins might be compressed given the emphasis on low costs and affordability that these programmes are typically associated with.
Republicans Add Seats In The Senate
Despite not retaining control in the House of Representatives, Republicans have added more seats to the upper chamber of the US Congress. While the Trump administration could continue to push for pro-economic agendas, reaching any sort of deals with emboldened Democrats given the partisan divide is going to be difficult. In the US, any bill must first pass both chambers of Congress by a majority vote in order in order to become law.
However, there are still common grounds like a tax-cut proposal for the middle-class. Despite that, we also think that the House will be hawking the US deficits which could balloon and put the US economy at risks if the Federal government continues to spend heavily on areas such as infrastructure.
Nonetheless, with Republicans still in the upper chambers we think that the industrial sector will still be a key sector to monitor closely. Additionally, the defence sector will continue benefiting from the growing Federal budget. The defence outlay in the US totalled US$590 billion in 2017 and is projected to hit US$790 billion by 2028.