The Democrats have won control of the House of Representatives.  The Republicans have added seats to their Senate majority.  President Trump remains for at least 2 more years.  What do I think the ramifications will be?  Not significantly much for companies and the financial markets.  “Gridlock” is the term being used, but I would call it stasis.  I think things will remain as they are for the next 2 years.  A lot of talk on both sides but not much action.  Here is how I think things will transpire for the next 2 years:

No Budget

I doubt there will be an actual budget being passed.  It is highly unlikely both legislative houses will agree to a budget.  This means we will move forward with “continuing resolutions” and increases in the debt ceiling.  This is nothing new – this is how we have operated since at least 2006.  This also means it is unlikely there will be any significant initiatives, such as a re-working of the tax code as we had in 2017.   The Federal deficit will continue to grow.  At some point, it will become too high, but I don’t know when that will be.  We may get there and not know it until we can’t do anything about it.   I believe the corporate tax cuts are safe, which is great news for companies and stocks.

Health Care

If you like your health care now, you will keep it.  If you don’t like your healthcare now, you will keep it.  I don’t see any way how health insurance and healthcare will change for the next 2 years.  Insurance premiums will continue to increase.  The system will continue to be inefficient.  If there are improvements, such as in medical record keeping, it will be because of private sector initiative.  Rising health care costs are bad news for employers – private companies and public sector alike.  

Infrastructure

Some are saying that there could be initiatives to invest in infrastructure.  President Trump ran on this in 2016 and the Democrats always like more spending.  I am very skeptical that a major infrastructure initiative will transpire because it will cost so much money and because we are already running too high of a budget deficit.  Don’t like the deficit?  Then raise taxes, Democrats say.  Not so fast, say Republicans.  I recommend you stay away from infrastructure plays in the stock market.  

Corporate Profits

Corporate profits should remain strong.  They have boomed during the past 2 years, which is why the stock market has increased.  They may not boom as loudly for the next 2 years but they should still be strong.  Due in part to the tight labor market with Unemployment under 4%, wages are increasing, but higher wages are somewhat offset by lower raw materials and energy costs, although those could reverse at any time.  With the federal government in stasis mode, including the tax code, there is nothing major on the horizon to change the arc of corporate performance an profits.  

Bonds

There will certainly be a continued increase supply of US Treasury bonds because of a growing budget deficit.  Yields have risen for the past 2 years and likely will rise more, but it is up to debate how much more the Federal Reserve will increase short-term rates.  Economists like to point to short-term rates equal to the GDP growth rate, and both are probably to meet pretty soon at the 3%-level.  

IMO

The stock market rallied strongly on Wednesday 11/7 after the midterm election.  “Relief Rally” was the term used, but I believe investors see that the good business environment is most likely to continue for the next 2 years.  Stock investors like “certainty”, or at least lack of ambiguity.  I think it is pretty unambiguous that the Federal Government situation will not cause a big change in the US Economy for the next 2 years.