Tokyo’s benchmark Nikkei index
and Hong Kong’s Hang Seng
fell less than 0.5% in afternoon trading Wednesday, while stocks in mainland China and South Korea were also lower. US futures
pointed slightly higher.
The elections are shaping up to have significant political consequences for the world’s largest economy. Democrats are set to win a majority in the House of Representatives
while Republicans retain control
of the Senate. But investors are not betting on a dramatic change in policy.
“I don’t think the outcome is a big surprise,” Larry Fink, the CEO of money management firm BlackRock, said Wednesday at a Bloomberg business conference in Singapore.
Markets suffered “a big setback” in October
and are now “trying to restabilize,” Fink said. Digesting the results of the midterms “will be part of that restabilizing process,” he added.
Investors are bracing for a period of gridlock in the United States, with neither party likely to be able to enact sweeping legislation. While that may mean Republicans and President Donald Trump fail to cut taxes further, it also means the current tax cuts can’t be rolled back.
The elections are “unlikely to bring any near-term policy shifts,” Richard Turnill, BlackRock’s chief global investment strategist, wrote to clients ahead of the results.
The main US indexes had closed up just over 0.5% on Tuesday as voters went to the polls.
With Congress divided, America’s fiscal, regulatory and monetary policies will likely stay the same. Investors typically don’t mind gridlock, cynically figuring it means Washington can’t mess anything up.
“We see few sustained market implications if the midterms result in a divided Congress,” Turnill wrote.
But too much gridlock can also be a bad thing, as demonstrated by the debt ceiling stalemate of 2011 that caused an unprecedented credit rating downgrade.
“Expect fiscal deadlines to become more disruptive,” Goldman Sachs analysts wrote in a report this week.
The midterm results spared investors the shocks of the US presidential election and Brexit referendum in 2016. Both surprise events sparked dramatic reactions in markets. Stock futures initially plunged the night of Trump’s election, before rebounding and closing with a resounding gain