Certainty or volatility? U.S. midterm results

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administration-architecture-building-129112With the Democrats taking control of the House of Representatives in the midterm elections, Angus Sippe, portfolio manager at Schroders shares his views on what the election outcomes may mean for investors.

“I think that the split congress that was the result has been historically very positive for markets because of the effectively benign outcome on policy going forward,” Sippe says.

While he says it is not clear on day two after the results exactly how relationships between the Senate, the House and the U.S. administration will unfold, the checks and balances that are now in place will mean that there’s likely to be more deal-making process going forward, at least between the administration and the House.

On the flip side, he says it is possible to see more traditional-style politics where party allegiances cause gridlock between the House and the Senate.

“The two scenarios effectively are gridlock or higher volatility as you see the deal-making process move backwards and forwards between congress and the administration,” he says.

He points to infrastructure as a potential example. “The Republicans and the Democrats expression of an increased infrastructure spend are quite different and so there are some ways to go to even reach a bi-partisan agreement on that,” Sippe says.

Over the next two years, with clarity on the power within the Senate and the House he expects to see a continuation of the Republican economic policy and likely increased Treasury issuance. He also points to the potential of a bi-partisan infrastructure bill passing, which would put further upward pressure on treasury yields.

Now that the elections in the U.S. are over, what’s next?

Sippe says another geopolitical risk he is focused on is European political risk with Brexit, the changes with Angela Merkel in Germany and the ongoing tensions between Italy and the Eurozone.

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