Download the Schwab app from iTunes®Get the AppClose

Will the Senate Race Cause a Market Reaction?

Click to show the transcript

MIKE TOWNSEND:  As we get to the final countdown to the midterm elections, let’s take a look at the battle for control of the Senate. Historically, midterms are terrible for the president’s party.  If you go back to 1934, the president’s party has lost an average of four Senate seats in the midterms. With Republicans holding on to a narrow 51-49 majority today, that would be more than enough to flip the Senate to the Democrat control.

But reality is more complicated than history. This November, there are 35 Senate seats up for reelection.  Twenty-six are held by Democrats, including two seats held by Independents, Bernie Sanders in Vermont and Angus King in Maine, who caucus with the Democrats. And just nine seats are held by Republicans. Here are some of the races to watch.

On the Republican side, there are four Senate seats that are very competitive—Nevada, where Senator Dean Heller is running for reelection, as well as open seats in Arizona and Tennessee, where the incumbent Republicans are retiring. The other seat to watch is in Texas, where Senator Ted Cruz is locked in a tight battle with Democratic Congressman Beto O’Rourke. 

But even if Democrats were to pick up two or three of those Republican seats they have a lot more seats to defend. And making things even more challenging, 10 of the 26 seats Democrats are defending are in states that Donald Trump won in 2016. Keep your eyes on the races in North Dakota, Missouri, Indiana, Florida, and Montana. All of those races are shown to be very tight by the polls right now.  The outcome of those races will likely determine which party holds the majority in 2019.

But here’s the important thing to keep in mind:  No matter which party wins the Senate, the margin is likely to be very close, perhaps 51-49 or 52-48, one way or the other, and that’s a recipe for more gridlock. In the modern Senate, you really need a supermajority of 60 votes to break a filibuster and control the agenda.  As a result, we don’t think that the markets will have much of a reaction to the election outcome. Even if Democrats were to win both the House and the Senate, there would still be President Trump in the White House with a veto pen. The markets likely already realize that Washington will remain bitterly divided in 2019, and that’s why we don’t expect a huge reaction after the election.

To watch future Stock Market Reports, subscribe to the Charles Schwab YouTube channel.

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

Please note that this content was created as of the specific date indicated and reflects the author’s views as of that date. It will be kept solely for historical purposes, and the author’s opinions may change, without notice, in reaction to shifting economic, market, business, and other conditions.

Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Supporting documentation for any claims or statistical information is available upon request.

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.

(1018-8HUZ)

Thumbs up / down votes are submitted voluntarily by readers and are not meant to suggest the future performance or suitability of any account type, product or service for any particular reader and may not be representative of the experience of other readers. When displayed, thumbs up / down vote counts represent whether people found the content helpful or not helpful and are not intended as a testimonial. Any written feedback or comments collected on this page will not be published. Charles Schwab & Co., Inc. may in its sole discretion re-set the vote count to zero, remove votes appearing to be generated by robots or scripts, or remove the modules used to collect feedback and votes.