Midterm Election Takeaways

Summary

• Democrats secured majorities in both the House and Senate for the next two years following the midterm elections.
• Legislative gridlock is expected to prevail with few major legislative changes despite the larger-than-anticipated Democratic majorities.
• "Must-pass" bills will provide Democrats leverage to negotiate limited agenda items with the White House.
• Potential areas of agreement include drug price regulation, caps on credit card interest rates, and the revival of clean energy tax credits.
• Trade and tariff policy is unlikely to see compromise, as Democrats will not grant expanded tariff authority and the President will not agree to strip existing powers.
• Regulatory policy initiatives will continue through executive agencies, though congressional inquiries may slow the process or create reputational risks.
• The upcoming lame duck session will likely prioritize confirming federal judges and cabinet members before Democrats take control in 2027.
• The CLARITY Act is expected to be dropped from the lame duck agenda as Republicans shift focus to nominations.
• A continuing resolution extending government funding into 2027 and the National Defense Authorization Act are expected to be addressed as must-pass legislation.
• Bipartisan permitting reform faces an uncertain future due to potential Democratic opposition and House approval hurdles.
• A reconciliation bill to increase defense spending and raise the debt ceiling is considered unlikely due to Republican division following the election results.
• Government shutdowns are viewed as political events rather than market events based on historical investor reactions.