Markets soar with potential gridlock ahead

WASHINGTON — 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 healthcare 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 that already have received a large tax cut and sweeping relaxation of regulations under Trump and congressional Republicans.

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 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.

But 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 middleclass 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.