The Democrats are mulling one their biggest risks heading into 2020. That huge decision is whether to make Medicare for all part of their platform for the next election. The House currently has no less than eight proposals for how to make Medicare available to all. None of them are likely to pass in the next two years as the Republicans have control of the Senate. However, adopting the goal of Medicare for all would be a major signal about the direction of the Democratic party headed into the future. The idea is popular with liberals, but more contentious with swing voters.
FINSUM: This is a high risk/high reward strategy. It could either become a major rallying cry or another reason for those in the middle to abhor the left-most leanings of the Democrats. Speaking from a politically neutral position, we do think this would be a good strategic move for the left, as one of the big challenges for the party is that President Trump and the right have grabbed the reins on shaping the vision for the future of the nation. This would be a chance for the Democrats to start to put forth their own cohesive vision.
Few would argue that the tax cut passed in late 2017 was one of the main drivers of the strong economy we saw this year. Corporate earnings have been stellar, the economy is expanding at a good clip, and the labor market is tight. However, the IRS looks about to undermine the benefit of the tax cuts. The agency just announced a new policy for 2019 regarding how it accounts for inflation. The move will undermine much of the value of the tax cuts by raising tax bills for almost all Americans. The new policy will increase tax revenue for the government by $133.5 bn over the next decade.
FINSUM: This is the kind of policy that is going to hurt more over time. That said, the current deficit is huge, so from a fiscal responsibility view it is hard to argue this is unnecessary.
The market had a relief rally right after the election results came in. Yesterday wasn’t so good. The big question on everyone’s mind is where the market is headed from here. Looking historically, the current political arrangement (split Congress, Republican presidency) is the worst for markets. The S&P 500 has had the lowest returns in the current political set up, though it has only occurred four times since 1900.
FINSUM: The market’s outlook for 2019 appears fairly bleak to flat for us. The main reason why is that there won’t be another major tax package, and the great earnings of this year will make 2019 comparisons look weak. Growth is also likely to slow.
The Democrats may have won the House, but they are at a definitive crossroads. While the Republicans currently have a well-defined brand and agenda, the Democrats found themselves largely without a leader and without a clear agenda (other than being anti-Trump). That means they will have some big decisions to make in the near term as they try to mount a push for the presidency in 2020. There appear to be two major policy decisions the party is considering. The first is whether pursuing a fruitless impeachment against Donald Trump would be worthwhile, and the second, and frankly more intriguing question, is whether they will adopt a “Medicare for all” platform.
FINSUM: So much hangs in the balance right now. The Democrats have let themselves be overshadowed by the Republican party and will need to find their ideological and policy footing ahead of the next election. We expect the party’s agenda will move further left in order to serve as a mobilizing foil for its base.
Barron’s has made an argument to investors. Despite all the turmoil recently, and the potential threat of the midterm elections, it says you should stick with stocks. Part of the reason is historical—stocks have usually continued to do well even when Congress flips (though the sample size historically is small). For instance, the stock market continued to perform well when Congress turned against Obama. On a policy front, the outcome looks positive too, as Democrats could limit some of the less popular policies of the Republicans, like a trade war, which would help US corporates.
FINSUM: We think the election is going to be positive for shares if everything goes as it is forecasted to. Any change from the blue House-red Senate prediction might shake markets.