Investors are increasingly considering what a possible Republican takeover of the United States government might mean for stocks, bonds, and currencies despite the initial frenzied market reactions to Donald Trump’s victory.
In a so-called “red sweep” scenario, where Republicans control both the White House and both chambers of Congress, Donald Trump might have more freedom to carry out his economic policies.
Many, like tax cuts, are considered good for growth but also increase inflation risk.
As election officials counted the final votes that will decide control of the US House of Representatives, Republicans maintained a slim lead, despite Democrats successfully flipping two seats in New York.
“With many of Trump’s policies geared to support stocks, particularly small caps, markets are likely to respond well to a red sweep,” JJ Kinahan, CEO of IG North America and president of online broker Tastytrade said, as reported by Zawya.
As investors rebalance their portfolios for stronger growth, looser regulations, and the possibility that inflation concerns could prevent the Federal Reserve from cutting rates too deeply next year, expectations that such policies will be partially implemented under Donald Trump have helped push some areas of the stock market higher, strengthen the dollar, and press on Treasuries.
One notable move has been in small cap stocks, with the Russell 2000 index up about 8%.
Even though some of those strategies have cooled off recently, investors are still speculating about how Donald Trump’s policies might impact the economy and markets in the long run, particularly in the event of a red sweep.
According to Donald Trump, federal regulations that impede the creation of jobs will be reduced. He promised to maintain a tax cut he signed in 2017 while in office, and his economic team talked about implementing additional corporate and individual tax cuts beyond those implemented during his first term.