Divided Congress creates stock rally after midterms

But experts keep economic expectations steady

The Dow Jones jumped following the news of a divided Congress after the midterm elections.

As the markets opened Wednesday morning after the elections, stock markets showed gains.

Early Tuesday night, analysts called the race – giving the House of Representatives to the Democrats and the Senate to Republicans.

While many key races were still too close to call as of Wednesday morning, it appeared that the Democrats would gain 30 seats in the House (they needed 23 to take the majority) and the Republicans would gain three seats in the Senate.

And one expert explained this divided Congress is just what investors want.

“U.S. stock index futures are pointing to a strong opening on Wall Street after the baseline consensus forecast for U.S. midterm elections proved correct as Democrats won control of the House, while the GOP hung on to the Senate,” a report from Seeking Alpha stated. “History has shown that mixed party control is generally the best combination for equity markets, while the highest-growth stocks can keep putting up terrific numbers even during an economic slowdown. Democrat-friendly sectors, like the biotech cohort which runs counter to Big Pharma, could also get a boost.”

But in the long term, it is unclear what this split will mean as Congress is likely to remain gridlocked on potential legislation.

Many experts have already been projecting a recession in 2020 or even as early as 2019. Now, this split could hinder Congress from taking action that could help strengthen the economy against an upcoming recession.

“The Democrats were widely expected to win control of the House in yesterday’s midterm elections and the results set the stage for two years of legislative gridlock,” Capital Economics Economist Andrew Hunter wrote in a report. “President Donald Trump and the Democrats could work together to boost infrastructure spending, but there is probably more chance of an extended government shutdown.”

But so far, experts have insisted that their economic outlook remains unchanged by the midterm elections.

“Overall, the midterms are unlikely to have a significant bearing on the economy,” Hunter said. “But they probably raise the risk that political uncertainty once again becomes the dominant theme over the next couple of years.”

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