INSIGHTS

Fifth Edition

Election Results and Market Implications

Angus: What are the main takeaways from midterm election results?

Amy: Elections are important in terms of their implications for future legislation and the potential to change the dynamics of an industry. While the outcome is still uncertain, Republicans have an edge in the House, and Democrats in the Senate, meaning we can expect gridlock in terms of meaningful legislation in the next two years.

In general, tax hikes are dead, further fiscal stimulus is unlikely and defense spending will rise. Republicans will stress border security and domestic energy production.

Angus: What potential issues do you see for the lame-duck session?

Amy Bush, CFA

Chief Investment Officer

C. Angus Schaal, CFP®

Senior Managing Director

Amy: There are tax credits set to expire for businesses and families that will require compromise. The government must also pass budget bills next year, including fiscal 2024 funding and a debate over the debt limit. Additionally, expect Ukraine funding to see further discussion.

Finally, the agenda regarding Chinese countermeasures will continue to develop around the following issues: export controls targeting industry/military, limiting foreign investment by US companies in China, Taiwan policy, intellectual property theft, China state-owned companies’ purchases of US farmland, the origins of COVID-19 and the space race.

Markets crave certainty. Given gridlock on the legislative front, most of the risk to the economy now comes from monetary policy. Fed Chairman Powell will continue fighting inflation by raising interest rates despite the negative impact on economic growth and the destruction of jobs. This is necessary to rid the economy of excess liquidity in order to form a more healthy foundation for the next expansion.

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