Will We See A Lame Duck After The US Election?

The upcoming midterm elections have attracted the financial markets attention, as they can give an answer to the question of whether the American people will continue to support Trump. A potential victory of the Democratic Party could seriously undermine the president’s initiatives. The President, who is severely restricted in his legislative initiatives, is called “lame duck.” By the way, this situation had been lasting during the last Obama’s presidency years.

Wall Street has its own interest Financial institutions fear that a full control by the Democrats over both houses (the House of Representatives and the Senate) could lead to the restoration of the Dodd-Frank Act, which restricts the activities of banks and the abolition of recent tax cuts. In case of decisive victory of democrats, the markets are able to get under sharp pressure. Very ironic, because two years ago those markets were so afraid of Trump, until his winning speech!

The dollar might turn to growth, as deterrence to the president’s initiatives is easily transformed into expectations of less spending, and therefore, less inflationary risks. On the contrary, a full control by the Republicans, might be warmly welcomed by the stock markets and erode some position of the dollar.

Markets are often favourably perceived by Republicans in power, as it is associated with the decline of corporate taxes and the growth of government spending. Observers predict (whether they became more accurate after 2016?) a victory of Democrats in the House of Representatives, but a control by Republicans in the Senate. This will enable the Democrats to investigate Trump’s administration but will not allow the Republicans to be particularly deterred.

This outcome will cause the smallest fluctuations, in contrast with the first two scenarios, in the markets and will help them to quickly shake off the event, concentrating on economic data and trade policy.