The Independent Market Observer

Election Day: What to Expect If the Republicans Win

Posted by Brad McMillan, CFA, CAIA, MAI

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This entry was posted on Nov 4, 2014 1:14:38 PM

and tagged Politics and the Economy

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election dayAfter months of debate, millions of dollars spent, and hundreds of thousands of TV ads (and that’s just here in Boston over the past week), Election Day is finally here. When all’s said and done, will it actually make any difference?

Maybe not as much as partisans on both sides would hope, but yes, it will.

The Republicans will certainly retain control of the House of Representatives, and the Presidency isn’t up for grabs this time. What’s at stake here is control of the Senateand if the Republicans can get that, control of Congress and the legislative agenda.

The betting seems to be that the Republicans will indeed take the Senate and Congress, so let’s consider what that’s likely to mean for the economy.

A look forward

Here’s what political analyst Greg Valliere (whose take on government spending I mentioned the other day) anticipates if the Republicans end up winning the Senate:

  1. Despite the desire of some to go back down the confrontation path, the pragmatists will win the internal battle, and we won’t see a return to government shutdowns.
  2. The Affordable Care Act (Obamacare) won’t be repealed but will be modified.
  3. Legalizing petroleum exports is very likely.
  4. Corporate tax reform is far more likely than commonly thought.

While downsides potentially exist (especially if point 1 turns out to be wrong), all of these outcomes are positive for the economy and the markets.

A look back

Now, let’s look backward and see what history tells us about the S&P 500 and different election results, from a study by Standard & Poor’s.

Election_Day

Looking at the data, we can see that, historically, a Republican Congress and a Democratic president have had the second-best results of all. While the market has roared over the past four years (the best result), history suggests that a Republican takeover of the Senate isn’t a death knell.

Reason for optimism

These are only two analyses, but they suggest that the next six months are likely to be positive from a political and economic standpoint.

Of course, that might not be the case if either side decides to put making political points over getting things done. As we’ve seen several times in the past decade, though, that kind of behavior is ultimately defeating. The Republicans, in particular, have a lot to lose going into 2016 if they take control of Congress and accomplish nothing. And, by going confrontational, President Obama would be destroying his last chance to control his legacy.

Politically, this Election Day seems about as cheerful an event as we’ve had for a while. In closing, don’t forget to get out and vote—if for no other reason than to preserve your right to complain about the government. 

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