Investors wanting to see bipartisan, fiscally expansionary bills out of Congress, like those passed at the end of 2015, will have to wait: The election cycle will dominate Washington with lawmakers taking a “do no harm” approach in 2016.
The elections in November will see contests in all 435 House seats, 34 of the 100 seats in the Senate and for the White House. While it is early days, it is very hard to imagine a scenario in which the House of Representatives does not stay in Republican hands. After aggressive redistricting in 2010, in which party support was consolidated, there are only a relatively small number of House seats “in play”; Republicans may lose a few House seats but will almost surely hold onto their majority, which is now the biggest since the 1920s.
The current Republican-controlled Senate is much closer – and too early to call with any certainty. Unlike in 2014, when Democrats were defending a majority of Senate seats up for re-election (and then lost their majority in the Senate), it is the Republicans who are defending the bulk of Senate seats this year. Of the 24 of 34 seats that Republicans are trying to preserve, seven are in states that voted for President Obama twice and are considered to be instrumental “swing” states in the race for the White House. As a result, we think a very likely scenario is one in which the Senate goes the way of the White House (e.g., a Democratic majority is ushered in with a Democratic president and vice-versa).
How about the race for the White House? Given primaries do not start until 1 February, it is entirely too early to prognosticate a presidential election outcome. However, it can be said that Democrats have a structural tailwind going into the national election given changing demographics, largely due to immigration, in key swing states such as Colorado, Nevada and Virginia. Republican turnout and enthusiasm for the party’s candidate could overcome this Democratic advantage, but changes in demographics will continue to be a headwind for Republicans, who have historically relied on white voters to win national elections.
All in all, we should expect 2016 to be an exciting year from a political perspective, but a quiet one on the policy front.