How can you profit from the midterm fallout?
WALL Street liked what happened in Tuesday’s elections, figuring that the Democrats who will now control the House can keep Donald Trump’s more destructive tendencies — on things like trade, for one — in check.
Wall Street doesn’t know Trump.
The Dow Jones industrial average rose 545 points on Wednesday, to close at 26,180. And Tuesday’s overnight futures markets moved even more dramatically as the election results were coming in. It looked like someone had put a yo-yo in traders’ hands.
Wall Street is getting ahead of itself. If traders are expecting calm after the storm, they will end up being capsized.
For one thing, Trump won’t let a little thing like defeat in an election hold him back. This guy has been through embarrassing divorces, corporate bankruptcies, scandals and more scandals, and has always come out looking on the bright side of things.
The bright side that he’ll see in this election?
For one thing, Trump got a bigger majority in the Senate. And Cabinet appointments, appropriations bills and — the one that recently had everyone in a tizzy — future Supreme Court picks are mighty good leverage for getting cooperation from the Democratcontrolled House.
There’s also this point that will soothe any part of Trump’s ego that might have been bruised: The Democrats under President Obama lost 63 seats in the House in the 2010 midterm election.
Trump’s Republicans lost only 34 seats. “What a victory!” Trump must be thinking. (In truth, the Democrats were probably disappointed they didn’t get anywhere near the so-dubbed “blue wave” victory they were hoping for.)
So if the Chinese think they are going to see the softer side of Trump now that the politicking is over, they, too, are going to be very disappointed.
Here’s what congressional gridlock, with Republicans controlling the Senate and Democrats the House, will mean to you, according to Goldman Sachs.
No major changes on taxes (which means the federal debt will get worse).
Government spending will stay at current levels (which means the federal debt will get worse).
No deal on infrastructure (which will help the deficit and not matter until some bridge somewhere falls down).
Health care will be a major issue that maybe — maybe — the two parties can reach an agreement on (but don’t count on it).
No changes in regulations because the House may pass bills but the Senate will reject them.
Federal spending deadlines will get trickier as brinkmanship abounds. The next deadline is Dec. 7.
Do you notice how this election had so much to do with money issues? Politics mirrors life.
The big dynamic in this election was the economy.
If there are jobs and the voters are happy, you only lose 34 seats in the House and not 63. But here’s the tricky part for the president in 2020. (Yep, it’s time al- ready to talk about the next election.)
Most administrations like to have the economy start out slowly and speed up just in time for the next presidential election.
Trump’s impatience upon being elected in 2016 may have put his administration’s economic achievements out of step with good politicking.
President George H.W. Bush lost to Bill Clinton in 1992 because Bush’s economy didn’t feel like it was growing on the night of his reelection vote.
Trump might be out of step, and the economy could be waning by the time his re-election is decided.
Which stocks will benefit directly from the election results?
If the Dems and Reps can get together on an infrastructure plan (not likely), industrial and materials stocks will benefit. Drug stocks will be hurt if the two sides start cooperating on medication price decreases (not likely).
And if Trump’s trade policies, which many, including me, think are dangerously aggressive, are curtailed (not likely), companies like Caterpillar, Boeing, Apple and any other outfit that does business overseas might benefit.
If I sound negative, that’s because of all the ill will. But if the Democrats play their cards right, they might actually get something out of Trump that will help them in the next presidential election.
During his lifetime, Trump hasn’t been locked into any particular political philosophy. He bends.
And it’s time for some bending by both sides in Washington. The Federal Reserve’s policymaking committee is meeting this week. There probably won’t be a rate hike this time. The Fed is saving that for December, when there is an 80 percent possibility — according to the gamblers on Wall Street — of another boost in borrowing costs. Still, this week’s post-meeting message from the Fed will be carefully read for signs of increased inflation concerns. If Jerome Powell, the Fed’s chairman, sounds calm about inflation, the markets will rally.