2018 Mid-Terms Takeaways

By Greg Valliere
Horizon's Chief Global Strategist

November 7, 2018

About Last Night – A Dozen Quick Take-aways

1. Something big for everyone last night, but the major conclusion for investors is clear: Donald Trump's economic policies will remain intact. He won't get new initiatives passed in the House, but Trump's tax cuts and deregulation are good for at least another two years.

2. Democrats are salivating over House subpoenas, investigations, Trump's tax returns, the upcoming Mueller report, etc. – but will they overplay their hand and give Trump an easy foil in 2020?

3. Republicans have a serious problem with suburban women; female candidates surged last night, and half a dozen women are in the top tier of candidates for the Democrats' 2020 nomination.

4. Trump conceded this week that his tone may be a problem; will he dial it back? Sure, Trump's dark rhetoric revved up his base – but his base alone may not be sufficient to win the next election.

5. Hard to see much getting done in the next Congress; infrastructure deal is possible but the details will be daunting. Democrats want to contrast their agenda with the GOP's, so look for a minimum wage hike to move in the House – but die in the Senate – in early 2019. The markets can live with gridlock.

6. Republicans will focus on deficit reduction as red ink skyrockets, but the prescriptions for reducing the deficit are politically radioactive. Expensive new tax cuts are dead, period.

7. Trump will be emboldened by his Senate success; he'll keep the pressure on China, North Korea, Iran and other U.S. rivals – who were hoping for a weakened president.

8. The Democrats are back in the Midwest; Trump essentially won the presidency two years ago in Pennsylvania, Michigan, Ohio and Wisconsin – but Republicans are now less popular in those key states. The player to watch in this region is Sen. Sherrod Brown of Ohio.

9. The 2020 presidential campaign begins within days; an exodus out of the White House also begins within days.

10. The focus will rapidly shift to three key players: Will Chinese President Xi agree to resume talks with the U.S. later this year? Robert Mueller has not gone away; he will indict soon. And is Fed Chairman Jay Powell really "the greatest threat to my re-election" as Trump said this fall?

11. The polltakers still have a problem: their surveys over-state support for Democrats – they don't detect "closet" Trump voters, a cautionary tale for 2020. Nevertheless, we pundits called this one accurately after getting shocked by the 2016 result.

12. Trump showed tremendous energy and determination in fighting for Senate candidates in the past few weeks. He made a difference in impressive GOP wins in high-profile Florida and Texas races. We've said it before and will say it again: you underestimate Donald J. Trump at your own peril.