background image background image background image

Midterms and markets – what happens next

Macro 4 minutes to read
Steen Jakobsen

Chief Investment Officer

Summary:  So, the Republicans tighten their grip on the Senate and the Democrats seize the House. But what does this mean for markets? Saxo's Chief Economist Steen Jakobsen gives us his take on the outcome of the US midterms.

US President Donald Trump already declared Tuesday night a "tremendous succes" but the facts are:

Democrats will take the House with a solid margin
Republicans will keep the Senate and even add a couple of seats

The "blue wave" of Democratic support both did and didn't happen, as the popular vote, with a big swing driven particularly among the educated and women, was strongly Democratic in aggregate (9+ percent with significant percentage of nationwide votes counted). Still, the House result didn’t move as strongly in favour of the Democrats as strongly as other midterm elections have in the past – and the strengthened Republican result in the Senate keeps Congress thoroughly divided. All in all, still remarkable success for the Democrats, who have no clear nationwide agenda.

The new Democrat majority US House of Representatives will mean....

Change of Majority Leader - most likely to be Nancy Pelosi - she is tough and experienced, but is an uninspiring politician as the face of the "Democratic resistance".

13 committees will change Chairmanship....including judiciary and banking (we expect this will mean a repeal of deregulation – it is negative for banks and a fight again over medicine prices).

A little-observed change made by the Republicans in the last session means that a Chairman of a committee can subpoena without majority approval for doing so within the committee. Things like Donald Trump's tax returns and real estate dealings could be targets. Democrats have already signalled they will use this power extensively.

The House majority going to Democrats means Trump and his conservative agenda will be "road-blocked", so don't expect new tax cuts or comprehensive legislation.

Democrats indicate they will "work" with Trump if it’s deemed constructive for America – ie potential in infrastructure (which never will work in the US as local states carries fiscal burden ) and small tax cuts if next downturn comes ahead of 2020 election cycle.

My conclusion

Democrats got the win needed to reignite their 2020 campaign, but it’s a party that lacks a vision and needs to define itself outside of "anti-Trump" terms.
Trump didn’t flare out but... his conservative agendas momentum was paused.

The US remains more split than ever and the two parties have major – very major – identity issues: The Republicans rise and fall with Trump, and have no appeal in the growing demographic groups of the US, especially the US' largest generation, the millenials.

Again, the Democrats have no real agenda and haven't decided their identity, with a struggle between more centrist tendencies and all-out progressives (think social democracy/Bernie Sanders).

Market reaction:

Stock futures up slightly - "relief rally" could move NAS and SPX up over the next 48 hours.
Banks and Pharmacy should do worse .....

Dollar – no impact 
What to watch for:

Trump on China - with his ability to conduct fiscal expansion curtailed his focus will be his own reelection and here anti-immigration and China bashing will lead ...

Remember the midterms have the strongest ‘seasonality’ around - with the low of the year traditionally preceding midterm election year and the following twelve months usually positive. Still, remember our Four Horsemen:

Quantity of money – falling
Price of money – rising 
Price of energy – rising 
Geopolitical risk – rising 

The goods news of the night has been that the new House will better represent US society as it will feature:

- the first Muslim congresswoman
- the first Somali immigrant congresswoman
- first openly gay man elected governor
- youngest woman ever elected to Congress

and more history was made Tuesday night (Axios , the source)


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (

40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992