'Blue Wave' may be just a ripple 'Blue Wave' may be just a ripple http://www.federatedinvestors.com/static/images/fed-logo-amp.png http://www.federatedinvestors.com/daf\images\insights\video\orlando-video-nov-small.jpg July 15 2019 November 12 2018

'Blue Wave' may be just a ripple

Chief Equity Strategist Phil Orlando outlines three important swing factors that could help decide the outcome of the midterm elections.
Published November 12 2018
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Chief Equity Strategist Phil Orlando outlines three important swing factors that could help decide the outcome of the midterm elections. Views as of 10-31-2018 and are subject to change based on market conditions and other factors.

Video Transcript
00:05
Stocks have gotten crushed over the past two months, partly on concerns about Fed policy, President Trump's trade and tariff war with China, and the negative impact of a stronger U.S. dollar on corporate profits. But we continue to believe the market's fear of a Blue Wave in the midterm elections is part of that mix. Will Trump's business-friendly fiscal policies change with these election results? In the waning days of the campaign, we're watching three important, fluid swing factors that could help decide the outcome. First up is President Trump's net job approval rating. It was a dismal negative 21% at the end of last year, but has since improved sharply to a negative 8% at present. Next up is the so-called generic ballot. It favored Democrats by 14% at the end of last year, but today, that lead has been halved. Finally, the enthusiasm gap. A recent Wall Street Journal poll pointed out that in the 2010 midterms, Republicans enjoyed a very wide 20% lead in voter enthusiasm, resulting in a net pickup of 63 House seats, the biggest win by either party in more than half a century. In 2018, it was Democrats who enjoyed a very strong 16% lead over the summer. But that enthusiasm gap has narrowed to only 4% over the last 2 months. The net improvement in these three key voter metrics suggest Republicans may lose less seats than feared in the House. So the Democrats may regain control, but their victory may be relatively narrow, rather than a Blue Wave tsunami. In the Senate, the demographics still favor the Republicans and their existing 51-49 advantage. We expect they will hold on to their Senate majority and maybe even add a few seats. That's an important market-friendly result, because a split Congress makes the risk of impeachment-and the prospect of a change in fiscal policy-much less likely.
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