Markets Brace for Washington Policy Battles

Election Outcome & Voter Sentiment

• Exit polls identified affordability, accountability, and corruption as key voter concerns, with the economy cited as the primary driver.
• The election results reflect a shift in the balance of power that Joe Livornia anticipated based on his prior observations.

Macroeconomic & Market Outlook

• The U.S. labor market remains healthy with strong underlying growth, though the economy is not experiencing a "disinflationary boom" as previously expected.
• Markets initially reacted with a "knee-jerk" response, perceiving the new political environment as less favorable, but Livornia expects a recalibration once fundamentals are reassessed.
• A resolution of the Middle East conflict (specifically regarding Iran) could lower oil and sensitive commodity prices, aiding inflation relief.
• Livornia argues markets are currently overestimating policy volatility, noting the President's use of executive orders and veto power limits substantive shifts under the current laissez-faire approach.

Policy & Regulatory Environment

• AI investment spending is projected to continue in the short term, though it will eventually slow.
• Livornia anticipates market focus will shift to the 2028 presidential election as the immediate two-year horizon lacks distinct policy changes.
• Regulatory traction is expected to be minimal, with "gridlock" viewed as potentially beneficial if it prevents aggressive legislative battles.
• Trade policy remains a potential area for Congressional action, though Livornia predicts more "battle" than constructive cooperation.

Personnel & Administration Dynamics

• Stephen Miller was elevated to Chief of Staff and is described as the President's longest-serving, most trusted advisor with unconditional loyalty.
• Miller's policy influence is significant, with reported pitches to withdraw from Iran and seek a diplomatic deal.
• Treasury Secretary Scott Bessent is viewed as a key influencer who has successfully pressed for sanctions on Iran while adhering to the President's agenda with minimal public friction.
• Career staff at the Treasury Department are characterized as excellent, apolitical, and consistent regardless of the party in power.
• Significant personnel changes are anticipated in the administration as the second term progresses, driven by poor recent election results.

Legislative Forecast & 2028 Election

• Livornia expresses low optimism regarding congressional cooperation, predicting a "nasty" political battle rather than a beneficial stalemate.
• Essential legislative items requiring passage include a debt ceiling increase, funding for farming and defense authorization, and a Continuing Resolution (CR) extension.
• The current CR is scheduled to expire on December 11th.
• With the 2028 election cycle approaching, Livornia sees little desire for either party to compromise on budgetary or policy matters.
• Livornia remains an optimist regarding the long-term U.S. fundamentals despite the short-term political friction.