Thinking About The Elections

The press has been predicting for months now of a coming "Democratic wave" in the upcoming elections for the US House of Representatives.  Some even go so far as to suggest the Senate will fall to the Democrats as well.  If this comes to pass shouldn't it be bad for the markets?  My answer is that in and of itself, probably not.  Here's why.

Markets are constantly looking ahead and discounting future events. They care much more about tomorrow than what occurred yesterday.   At a minimum right now the markets think there is a strong possibility that the House will flip to the Democrats.  This is already discounted in future projections. I'd guess that market handicappers give the probability of a flip in the Senate about 50-50 right now.  But the markets are saying so what to that.  Let's say it happens, the Presidency will still be controlled by the Republicans so the Democrats will have little hope in reversing some of the President's economic policies.  Divided government likely means two years where little of substance gets done in terms of dismantling these policies and I'm guessing the market would be alright with that.

What about the chances of impeachment if the Democrats gain control of the legislative branch?    While it is possible the Dems would introduce articles of impeachment in the House, an impeachment trial would be held in the Senate.  There a 2/3rds majority is required in order to convict.  The chances the Democrats could find 67 senate votes for impeachment, even if their wildest election dreams come true, are rather slim.  Also  I think the upcoming presidential elections in 2020 will play a part in that.   Would the Democrats rather run against the polarizing figure of Mr. Trump or against Mike Pence.  I think they'd prefer to run against Mr. Trump, especially if the economy is weaker then than it is now.

 

Finally about the so called "Democratic wave", lets just see how pronounced it actually is.  True on all generic ballots signs point to an upcoming victory for them.  However, people actually get to vote and when talking about the House we need to remember that it doesn't matter if a half a million more voters come out in strongly Democratic districts.  It is in these swing districts where the vote matters and don't be surprised if the current fight over the Supreme Court doesn't galvanize some Republicans who may have been on the fence this election cycle.  The press constantly points out these generic poll number but pays little attention to the areas where this matters the most, the swing districts.

In any event we will see in November.  Back Friday.