The policy analysis provided by the Charles Schwab & Co., Inc., does not constitute and should not be interpreted as an endorsement of any political party.
November’s midterm elections are now just around the corner, and the potential for major political changes is high. Whether the same can be said for policy is an open question.
Republicans hold a sizable majority in the House of Representatives (236-193, with six vacancies) and a razor-thin 51-49 majority in the Senate. Both majorities, however, are in jeopardy.
Republicans are battling history. There have been 38 midterm elections since the end of the Civil War, and the president’s party has lost House seats in 35 of them. The story is similar for the Senate. There have been 26 midterms since we started directly electing Senators in 1913, and the president’s party has lost seats in 19 of them.
Since 1934, the president’s party has lost an average of 30 House seats and four Senate seats in the midterms. If those averages hold in 2018, control of both chambers of Congress will flip to the Democrats.
However, in these highly partisan times, wresting control of Congress doesn’t necessarily mean taking control of the policy agenda, as we’ll see below.
Over the next few weeks, we’ll preview this fall’s elections, with a focus on the key races to watch and the potential implications for the policy agenda in 2019. In this first installment, we will focus on the Senate.
Control of Senate up in the air
Despite their narrow majority and the daunting historical record, Senate Republicans have one big advantage heading into November’s election: They have far fewer seats to defend. Of the 35 Senate seats being contested this fall, Democrats currently occupy 26—including two seats held by Independents who caucus with the Democrats—and Republicans hold just nine.
That means the path to a Democratic majority is fairly narrow. Just four of the nine Republican-held seats up for election are anticipated to be competitive, but Democrats need to net just two seats to achieve a majority. Of course, they would also have to successfully defend all of the 26 seats they currently hold. And 10 of those seats are in states that President Donald J. Trump won in 2016.
Here’s a quick look at eight key races in the Senate. As you watch the returns on the night of Nov. 6, these races are the ones most likely to determine which party will control the Senate when the new Congress convenes in January:
- Arizona: Senator Jeff Flake (R) is retiring. Both parties nominated female members of the House of Representatives in this open seat race: Martha McSally won the Republican nomination and Kyrsten Sinema won the Democratic nod. Polling has been back and forth in recent weeks.
- Florida: Senator Bill Nelson (D) is running for re-election. Nelson’s bid for a fourth term might be the most competitive race in the nation. One recent poll had Nelson and his opponent, Republican Gov. Rick Scott, tied at 49%. Expect this race to be the most expensive in the nation and for it to be close right to the end.
- Missouri: Senator Claire McCaskill (D) is running for re-election. McCaskill, seeking her third term, faces Missouri Attorney General Josh Hawley, a Republican, in a very competitive race.
- Montana: Senator John Tester (D) is running for re-election. Tester is running for his third term as a moderate Democrat in a state Trump won by 20 points in 2016. His opponent is Matt Rosendale, the state auditor and a former Majority Leader in the state Senate. Most polls have Tester holding on to a narrow lead.
- Nevada: Senator Dean Heller (R) is running for re-election. Democrats may need in a victory in this state—which Trump lost to Democratic rival Hillary Clinton in the 2016 elections—to have any realistic chance at the majority. Democrats have nominated Rep. Jacky Rosen to challenge Heller. Two September polls showed Rosen with a one-point lead and a two-point lead, respectively—both well within the margin of error.
- North Dakota: Senator Heidi Heitkamp (D) is running for re-election. This is another state where a Democrat is running for re-election in a state that voted overwhelmingly for Trump in 2016 (Trump bested Clinton by a 64-28 margin). It may be the best chance for Republicans to pick up a Democrat-held seat. Rep. Kevin Cramer (R) was ahead of Heitkamp by four points in an early September poll.
- Tennessee: Senator Bob Corker (R) is retiring. This is another open seat that Democrats have their eyes on, and, again, winning here is likely a must if Democrats want to win the majority. Former Gov. Phil Bredesen (D) is running against Rep. Marsha Blackburn (R). An average of four polls taken since early August has this race exactly tied.
- Texas: Senator Ted Cruz (R) is running for re-election. A year ago, this was not a race that was expected to be on a list like this. But Rep. Beto O’Rourke (D) has succeeded in raising the vast sums of money necessary to run in this large, populous state and his progressive message has galvanized Democrats, who would like nothing more than to defeat the outspoken Cruz. Mid-September polls show Cruz holding a narrow lead.
Policy implications of a change in Senate control
One thing that seems certain about the Senate elections is that whichever party wins, the majority’s margin of control will likely be slim, say, 51-49 or 52-48—far short of the supermajority of 60 votes needed to really control the agenda in today’s Senate. Neither party anticipates being anywhere close to that after the election.
Even if Democrats flipped the Senate—and took the House—Senate Republicans would still likely have enough votes to block much of their agenda. In addition, of course, a Republican still occupies the White House and will be able to wield the veto pen. So a sweeping reversal of recent policy initiatives such as the tax cut law is unlikely.
If outright control of the policy agenda seems just out of reach for both parties, opportunities for cooperation are not. Infrastructure, for example, could be an area where bipartisanship prevails, regardless of who takes the Senate. Lawmakers on both sides of the aisle know that the United States needs to invest in roads, bridges, tunnels, airports and other projects—and the president seems to agree. A new infrastructure bill could be a boon for the economy, but lawmakers may struggle with how to pay for another massive bill without increasing the federal deficit.
Another issue for investors to watch is the return of the debt ceiling. This cap on how much debt the federal government can accumulate will be suspended through March 1, 2019. When it returns, the new Congress will have a choice: Vote to raise the ceiling or otherwise address the debt, or the country will potentially default on its debts for the first time in history. In recent years, increasing the debt ceiling has been a huge political challenge—and markets have grown skittish when Congress has flirted with a potential default.
Beyond infrastructure and the debt ceiling, much else about the 2019 policy agenda remains up in the air and won’t be clear until the results are in. Whoever wins, the likelihood of major market-moving changes in 2019—outside of a potential battle over the nation’s debt limit—is probably pretty low.
What You Can Do Next
What you can do next
- If you’ve built a solid financial plan and a well-diversified portfolio, it’s best to ignore the political noise and focus on your long-term goals. Want to talk about your portfolio? Call our investment professionals at 800-355-2162.
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