Experts Investment Markets Risky in Lead Up to 2018 Midterms

By Collin Hugely, Cox-SABEW Fellow

The course of the United States financial markets could look dramatically different after the dust settles from the 2018 Midterm elections, according to a panel of experts gathered a recent business journalism conference.

While a total Democratic congressional takeover is not likely, the real possibility of one of the houses of Congress turning blue could be enough to throw U.S. financial markets into disarray, the experts said during the Society for Advancing Business Editing and Writing Fall Conference on Oct. 25 in New York City.

Nearly halfway through the first term of President Donald J. Trump, the Republicans will try to hold off a potential blue wave from taking over control of the House of Representatives and potentially the Senate as well.As of Oct. 30, FiveThirtyEight projects that Democrats have an 86.4 percent chance to take control of the House, but just a 14.8 percent chance of flipping the Senate.

“If you get Democrats gaining control of the House, you could get a real stoppage of anything,” Robert Brusca, chief economist of FAO Economics, said. “We’ve had logjams before. We could have investigations open up against the President, which could be extremely debilitating. I think that there’s a lot more risk in this election than there is reward.”

Some of the more long shot possibilities could yield a wide range of outcomes for financial markets.

LizAnn Sonders, senior vice president and chief investment strategist of Charles Schwab and Co., said that a red wave could lead to another round of tax cuts and fiscal stimulus. Brusca went as far to say that more Republican control could be the worst possible outcome, because he feels that the United States economy has “had as much tax reform as we can take.”

The experts were quick to point out the potential risks that the elections bring to the markets. But there is an element of stability that can come with the outcome being what the public expects.

“Typically when you get what you expect, markets tend to be happier, a little more sanguine, which would be a turnover to the Democrats in the House, the Senate stays Republican,” Michael Farr, CEO and founder of investment management firm Farr, Miller and Washington, said.

The looming midterms could provide either great benefit or damage to the prospects for the United States economy and financial markets. Especially after President Trump’s unexpected victory in the 2016 presidential election, the outcome of the elections can feel uncertain.

And with so much at stake, and so much risk involved in the investment markets as midterms approach, Brusca suggested it might be wise to take a more measured approach to the markets.

“Having a more cautious attitude toward pricing assets makes a lot of sense to me,” Brusca said. “I’m concerned. I don’t see how you wind up on the other side of these elections with a better political trade-off with the economy.”

Collin Huguley is a journalism student at the University of Georgia’s Grady College of Journalism and Mass Communication and was recognized as a 2018 Cox-SABEW Fellow.

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