Mid-terms: Animal Spirits on the Ballot

For the mid-terms, we think the GOP will lose House control, with Democrats having only a narrow majority. We think the GOP will keep Senate control, perhaps gaining 2 seats. We think that this is the present market consensus, and therefore that only deviations from this would be market-moving. For growth policy, House control is irrelevant, but Senate control is critical for approval of cabinet, agency, Fed and court nominees. The bullish surprise would be the GOP keeping the House, the bearish surprise would be the GOP losing the Senate. The stakes are bigger than just policy. The mid-terms may reveal whether the electorate is willing to continue to live with the unleashing of animal spirits reflected in the Brexit referendum and the Trump election, for the sake of accelerating growth. For all the cacophony, Trump has delivered -- now the question is whether the electorate is willing to continue.