United States: Expectations for a “Republican Triple Victory” Rise
2024-10-28
■ Before the US presidential and congressional elections, the Republican Party's momentum increased, and financial markets were paying attention to the "Republican Triple Victory."
■ Once the "Republican Triple Victory" is achieved, inflation concerns may re-heat and have an impact on financial markets
In the PRESTIA Insight on September 12, the impact on US stocks was summarized in "Four scenarios around the US presidential and congressional elections." The "Republican Triple Victory" scenario, in which the US president and the majority of both the Senate and the House of Representatives may be controlled by the Republicans, has attracted attention and has affected financial markets. The Republican Party is expected to maintain its majority in the Senate. According to data from the opinion analysis website FiveThirtyEight, although the Democratic Party still has a lead in the presidential election, this advantage is shrinking rapidly, while the Republican Party's momentum is increasing in the House of Representatives, and the two sides are evenly matched. This article will re-summarize the impact on financial markets when the Republican Party has an advantage in the election.
(1) The situation in which the Republicans control the president, the Senate, the House of Representatives, and Trump is re-elected (Republican Triple Victory). It is expected that tariffs on major imports from China and other countries will be raised, causing inflationary pressure; strengthening border control and forcibly repatriating illegal immigrants may suppress consumption and drive up wages, which will, in turn, have an adverse impact on the US economy. At the same time, corporate performance is expected to expand due to the relaxation of strict supervision on the financial and energy industries and the reduction of income tax and corporate income tax on the rich. (2) Trump was elected, but the majority parties in the Senate and the House of Representatives differed (divided government). In this case, the tax reduction policy that requires congressional approval may be less effective than expected. Still, tariff increases and strengthening immigration policies can be achieved through presidential executive orders, which may lead to declining consumption and increasing inflation risks.
The Federal Budget Responsibility Committee pointed out in its fiscal estimates released on October 7 that Trump's campaign promises are expected to lead to an increase of US$7.5 trillion in the budgetary deficit between fiscal years 2026 and 2035 (≈economic stimulus factors). Trump's promises are expected to drive stock market gains, higher Treasury yields, and a stronger dollar. Still, the feasibility of the policy may affect market reactions depending on the results of the congressional elections. Although Trump has expressed caution about the appreciation of the dollar against foreign currencies such as the yen, such rhetoric is expected to have limited market effect without further threats to central bank independence or actual actions to demand rate cuts.
In its June forecast, the Congressional Budget Office (CBO) pointed out that the US supply-demand gap (as a percentage of GDP) is about 0.9%, indicating a supply shortage expected to continue until the first quarter of 2028. In an environment where inflationary pressures are more likely to increase, a "Republican triple win" may trigger renewed inflation concerns and reduced rate-cut expectations. The results of the US presidential and congressional elections may trigger sharp fluctuations in financial markets, so it is necessary to remain vigilant.
■ Once the "Republican Triple Victory" is achieved, inflation concerns may re-heat and have an impact on financial markets
In the PRESTIA Insight on September 12, the impact on US stocks was summarized in "Four scenarios around the US presidential and congressional elections." The "Republican Triple Victory" scenario, in which the US president and the majority of both the Senate and the House of Representatives may be controlled by the Republicans, has attracted attention and has affected financial markets. The Republican Party is expected to maintain its majority in the Senate. According to data from the opinion analysis website FiveThirtyEight, although the Democratic Party still has a lead in the presidential election, this advantage is shrinking rapidly, while the Republican Party's momentum is increasing in the House of Representatives, and the two sides are evenly matched. This article will re-summarize the impact on financial markets when the Republican Party has an advantage in the election.
(1) The situation in which the Republicans control the president, the Senate, the House of Representatives, and Trump is re-elected (Republican Triple Victory). It is expected that tariffs on major imports from China and other countries will be raised, causing inflationary pressure; strengthening border control and forcibly repatriating illegal immigrants may suppress consumption and drive up wages, which will, in turn, have an adverse impact on the US economy. At the same time, corporate performance is expected to expand due to the relaxation of strict supervision on the financial and energy industries and the reduction of income tax and corporate income tax on the rich. (2) Trump was elected, but the majority parties in the Senate and the House of Representatives differed (divided government). In this case, the tax reduction policy that requires congressional approval may be less effective than expected. Still, tariff increases and strengthening immigration policies can be achieved through presidential executive orders, which may lead to declining consumption and increasing inflation risks.
The Federal Budget Responsibility Committee pointed out in its fiscal estimates released on October 7 that Trump's campaign promises are expected to lead to an increase of US$7.5 trillion in the budgetary deficit between fiscal years 2026 and 2035 (≈economic stimulus factors). Trump's promises are expected to drive stock market gains, higher Treasury yields, and a stronger dollar. Still, the feasibility of the policy may affect market reactions depending on the results of the congressional elections. Although Trump has expressed caution about the appreciation of the dollar against foreign currencies such as the yen, such rhetoric is expected to have limited market effect without further threats to central bank independence or actual actions to demand rate cuts.
In its June forecast, the Congressional Budget Office (CBO) pointed out that the US supply-demand gap (as a percentage of GDP) is about 0.9%, indicating a supply shortage expected to continue until the first quarter of 2028. In an environment where inflationary pressures are more likely to increase, a "Republican triple win" may trigger renewed inflation concerns and reduced rate-cut expectations. The results of the US presidential and congressional elections may trigger sharp fluctuations in financial markets, so it is necessary to remain vigilant.