Americans will head to the polls tomorrow, November 6th, in what could mark a change in who controls Congress. Odds favor Republicans retaining their slim majority in the Senate, while it’s widely expected Democrats will take control of the House.
However, as history has shown us, anything can happen on Election Day.
Should the Democrats win the House and the Republicans keep the Senate, Congress will be divided. This means it will be highly unlikely there will be any further fiscal stimulus, such as additional tax cuts.
We should also expect that Democrats will intensify the investigations into whether there was collusion with Russia during the 2016 election, and they may try to review President Trump’s tax returns.
Depending on how things play out, House Democrats may also consider impeaching President Trump. If Republicans still control the Senate though, any impeachment proceedings will be dead on arrival.
All this political noise will be distracting, but at Simply Money Advisors we don’t expect there to be any economic impact.
The October jobs report released last week showed monthly gains for the 97th consecutive month, as the economy added 250,000 jobs. This reading is distorted by hurricanes though – there was a rebound from Hurricane Florence, but Hurricane Michael was a drag. For this reason, job gains are expected to moderate in the November.
The unemployment rate remained at a low 3.7% even as more than 700,000 people got off the sidelines and began looking for jobs.
The two things on Wall Street’s mind for most of this year have been interest rates and the trade war. The healthy October jobs report means the Federal Reserve (Fed), our nation’s central bank, will probably raise short-term interest rates one more time this year, but we believe it will be in December and not at this week's Fed meeting.
There was also some positive news on the trade war front last week as President Trump said he had a good talk with Chinese President Xi. Reports stated President Trump was hopeful a deal could be reached when the two leaders meet in late November. Time will tell.
The Simply Money Point
The midterm election results are likely to result in a split Congress, which will have little-to-no economic impact. The economic data we are seeing today points to further growth, which should be good for corporate profits.
However, recent earnings guidance from companies like Apple and Amazon show that future corporate earnings are going from “great” to “good.” Nonetheless, the growing economy and low recession risk should ultimately be good for long-term investors even as more market turbulence is a real possibility in the short term.