NEW YORK: Donald Trump’s shock election to the presidency ensures Republican leadership of the executive and legislative branches, ending a period of split government that Wall Street has generally favored.
Markets had been expecting an extension of this divided dynamic in Washington, rallying Monday and Tuesday after the FBI cleared Democrat Hillary Clinton in a probe into emails inked to her server, as the market priced the probability of a Democratic president coupled with a Republican Congress.
But Wall Street’s reaction Wednesday suggested it has hope for a Republican-dominated era as well. Near 1800 GMT, the S&P 500 was up 0.7 percent to 2,154.95.
“People are always more comfortable with a split government, but again an all-Republican government theoretically could be long-run good for business, depending on once they get in what the regulatory environment looks like,” said JJ Kinahan, chief market strategist at TD Ameritrade.
A split with one party controlling the White House and the other party running Congress, frequently has resulted in policy gridlock. That infuriated Main Street but offered Wall Street a predictable range of outcomes, whether the issue was foreign trade, oversight of the Federal Reserve, taxes and spending or various social policies.
Throughout the periods of Barack Obama’s presidency when he dealt with a Republican Congress, Wall Street stocks generally pushed higher. The market was also strong during periods of the presidencies of Bill Clinton and George W Bush when Congress was held by the opposing party.
Investors in October expressed nervousness when Trump’s campaign was floundering and Clinton’s large lead in the polls sparked expectations Democrats could control both branches of government, making it easier for them to potentially impose tougher regulation on banks, pharmaceuticals and other sectors.
But Trump’s unexpected win, coupled with Republican victories in the House and Senate, throws both branches into Republican hands.
During the presidential campaign, candidate Trump espoused a range of policies that included the traditional Republican fare of lower taxes and reduced regulation. He also lambasted the Obamacare health care law, a favorite punching bag of congressional Republicans.
But Trump also favoured heavy infrastructure spending, an idea congressional Republicans have resisted under Obama, and expressed a virulent hostility to free trade, a priority of many business- and agriculture-friendly Republicans.
That could make Washington seem more divided at times, even if united in party name.
“Though there have been Republican presidents coinciding with Republican congresses - most recently under President George W Bush - with Trump, this scenario would involve a president who many of his own party did not endorse, and who espouses a wide range of unconventional policies across the spectrum, from left-wing populist to arch-conservative,” BMI Research said in a note.
“Uncertainty in the world’s largest economy and by extension, uncertainty over the direction of the global economy, have increased significantly following this election.”
Besides negotiating with fellow Republicans, Trump also will be constrained by the checks and balances of the US political system, which provides levers of influence to the minority party, especially in the Senate, where the Republican margin over the Democrats is narrow.
“Nothing passes the Senate without at least eight or night Democrats on board,” said Chris Low, chief economist at FTN Financial.
Low said the big drop in Wall Street stock futures Tuesday night likely was caused by foreign investors less familiar with the US system.
“The more measured reaction here in the US reflects the fact that the US form of democracy is sort of unique in the world,” he said.--AFP
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