The Republicans won big in the midterm elections. They have reclaimed control of both houses of congress after an eight year hiatus. We pose the question, is a Republican victory better for the stock market? There has already been an unexpected yearlong rally in the market. Employment numbers are the best in seven years or more. Recent financials were good for many companies. And the US shale oil boom is lowering the cost of driving for consumers and the cost of doing business for companies. The only stocks that are currently down are energy stocks that have been hurt by their own success in bringing so much oil and natural gas to market. The Republican Party is believed to be pro-business which tends to please the market. But, given the already good state of the market and the recovering economy, is a Republican victory better for the stock market than if the Democrats had retained control of the senate? Here are a few thoughts on the subject.
Will Gridlock End?
Something that hurt the market was when the nation flirted with default on its sovereign debts. This was brought on by a minority of House Republicans who wanted to reduce spending across the board. The Republicans have done some house cleaning on their way to midterm victories and some of the more radical members of the party were defeated in the primaries and will not return next year. This may reduce some of the craziness that we saw a year ago. And it pleases the market when the government acts responsibly.
Can the Republican Work Together?
The Republican Party will control both houses of congress for the next two years. But, will the various members be able to work together? There are still radical Tea Party members who tend to be one issue politicians. In order to enact legislation and deal with the White House the Republican wills need to stick together and that may or may not happen. They can pass all of the legislation that they want to but the Democrats have the votes to uphold virtually any veto that the President chooses to make.
Is a Republican Victory Better for the Stock Market?
What is good for the stock market in the end is a growing economy, stability and control of the national debt. In the best of all possible worlds there is no Ebola virus, no Islamic State carrying out beheading of westerners and no Russian ambitions to annex parts of neighboring countries. These challenges still lay before the nation and agreement between the congress and the president is necessary to confront them. To the degree that a Republican victory strengthens the moderate center of the Republican Party they will be able to deal effectively with President Obama. This will be better for the economy, the country and the stock market. Is a Republican victory better for the stock market? Let us see if the Republicans can work together this time around.