MAR­KETS DON’T MIND GRID­LOCK

Tri-City Herald - - Front Page - BY JIM PUZZANGHERA

Ma­jor U.S. stock in­dexes soared Wed­nes­day af­ter the un­cer­tainty of con­tentious midterm elec­tions ended.

Ma­jor U.S. stock in­dexes soared Wed­nes­day, with the Dow Jones in­dus­trial av­er­age gain­ing nearly 550 points, af­ter the un­cer­tainty of con­tentious midterm elec­tions ended with the most widely ex­pected re­sult: a Demo­cratic takeover of the House and Repub­li­cans re­tain­ing the Se­nate ma­jor­ity

The Dow’s gain of

545.29 points, or 2.1 per­cent, to 26,180.30 was broadly based, with health care stocks per­form­ing es­pe­cially well as the threat of an Oba­macare re­peal be­came less likely. The Stan­dard & Poor’s

500 in­dex had a sim­i­lar per­cent­age jump while the tech­nol­ogy-heavy Nas­daq com­pos­ite was up about

2.6 per­cent. “Mostly it’s a big sigh of re­lief in that the midterm elec­tions are be­hind us and a sur­prise didn’t hap­pen,” said Michael Arone, chief in­vest­ment strate­gist at as­set man­ager State Street Global Ad­vi­sors, who called the gains a “re­lief rally.”

A di­vided Congress likely means grid­lock in Wash­ing­ton for the next two years on ma­jor pol­icy mat­ters. That would be just fine with busi­nesses, which al­ready have locked in a large cor­po­rate tax cut and sweep­ing re­lax­ation of reg­u­la­tions.

That agenda has tem­po­rar­ily boosted the U.S. econ­omy, and the elec­tion re­sults are un­likely to change its tra­jec­tory. Although growth is pro­jected to slow in the next two years as the fis­cal stim­u­lus fades, that’s an out­come that had been ex­pected even if the GOP main­tained con­trol of the House.

“The busi­ness com­mu­nity couldn’t have imag­ined in (its) wildest dreams hav­ing a pres­i­dent as sym­pa­thetic to their cause gen­eral as Pres­i­dent (Don­ald) Trump,” said Mark Ham­rick, se­nior eco­nomic an­a­lyst at fi­nan­cial in­for­ma­tion web­site Bankrate.com.

“You would re­quire both houses of Congress (to go Demo­cratic) to es­sen­tially over­ride all of that leg­isla­tively and you don’t have that,” he said.

Even though Democrats op­posed the-tax cut leg­is­la­tion be­cause much of it was fo­cused on cor­po­ra­tions and the wealthy, the party won’t be able to do a large- scale roll­back of the cuts given that Repub­li­cans re­tained con­trol of the Se­nate and Trump would veto such a bill any­way.

COM­MON GROUND?

At a White House news con­fer­ence Wed­nes­day, Trump said he’d be open to rais­ing tax rates on cor­po­ra­tions and/or the wealthy in ex­change for a deal with Democrats on mid­dle-class tax cuts. Trump had floated the idea of a mid­dle-class tax cut in the wan­ing days of the cam­paign.

“If the Democrats come up with an idea for tax cuts … I will ab­so­lutely pur­sue some­thing even if it means some ad­just­ment” in the new lower rates, he said. The cor­po­rate rate was slashed to 21 per­cent from 35 per­cent, and the top in­di­vid­ual tax rate was re­duced to 37 per­cent from 39.6 per­cent.

House Demo­cratic leader Nancy Pelosi, D-Calif., said Wed­nes­day that her party’s new House ma­jor­ity would “strive for bi­par­ti­san­ship” and said she had talked Trump on elec­tion night about work­ing to­gether on build­ing and ren­o­vat­ing high­ways, bridges, air­ports and other in­fra­struc­ture. She also said she hoped to work with him on low­er­ing the cost of pre­scrip­tion drugs.

“We be­lieve that we have a re­spon­si­bil­ity to seek com­mon ground where we can,” she said at a Capi­tol Hill news con­fer­ence. “Where we can­not, we must stand our ground. But we must try.”

Trump said Wed­nes­day he was open to work­ing on those is­sues – un­less House Democrats try to in­ves­ti­gate him and his ad­min­is­tra­tion.

“Hope­fully, we can all work to­gether next year to con­tinue de­liv­er­ing for the Amer­i­can peo­ple, in­clud­ing on eco­nomic growth, in­fra­struc­ture, trade, low­er­ing the cost of pre­scrip­tion drugs,” he said.

IN­VES­TI­GA­TIONS

Some busi­ness sec­tors could face tougher scru­tiny as House Democrats gain the power to hold hear­ings and sub­poena cor­po­rate ex­ec­u­tives.

Wall Street in par­tic­u­lar could find it­self in the cross-hairs as Rep. Max­ine Wa­ters, D-Calif., one of Wash­ing­ton’s most out­spo­ken crit­ics of big banks, is ex­pected to be­come chair­woman of the House Fi­nan­cial Ser­vices Com­mit­tee.

“We ex­pect the top ex­ec­u­tives at the big­gest banks will be called sev­eral times over the next two years to tes­tify be­fore House Fi­nan­cial Ser­vices,” wrote Jaret Seiberg, an an­a­lyst with bro­ker­age and in­vest­ment bank Cowen & Co., in a re­search note Wed­nes­day.

“In ad­di­tion, in­com­ing House Fi­nan­cial Ser­vices Chair­man Max­ine Wa­ters will in­ves­ti­gate how the big­gest banks in­ter­act with con­sumers and busi­nesses,” he said. “We be­lieve Wells Fargo is most ex­posed on this front given the never-end­ing con­tro­ver­sies sur­round­ing the bank.”

De­spite the San Fran­cisco bank’s con­tin­u­ing trou­bles shak­ing off its unau­tho­rized-ac­counts scan­dal and other con­sumer abuses, shares of Wells Fargo were up nearly to $53.58.

MAR­KETS

For in­vestors, the mid- term elec­tion re­sults could be a best-case sce­nario.

A pre-elec­tion anal­y­sis by Bank of Amer­ica Mer­rill Lynch in­vest­ment bank showed that the an­nual re­turns of the S&P 500 are bet­ter un­der a di­vided Congress than when Repub­li­cans con­trol the White House and Capi­tol Hill.

“Mar­kets gen­er­ally do well un­der grid­lock,” said the Bank of Amer­ica Mer­rill Lynch re­port. Since

1928, the S&P 500 has had an an­nual re­turn of 12 per­cent with a Repub­li­can pres­i­dent and split con­trol of Congress. That ex­ceeds the re­turns when a Repub­li­can pres­i­dent has had ei­ther a full Repub­li­can or Demo­cratic Congress, the re­port found.

Av­er­age re­turns in the year af­ter a midterm elec­tion have been more than

20 per­cent since 1952.

RICHARD DREW AP

Spe­cial­ists on the floor of the New York Stock Ex­change watch Pres­i­dent Don­ald Trump’s news con­fer­ence Wed­nes­day. The re­sults of the midterm elec­tions came in largely as in­vestors had ex­pected.

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