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Regulation and Compliance > Federal Regulation > SEC

Insiders Go Deep on Midterm Predictions

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All eyes are on the Nov. 6 midterm elections, with political watchers prognosticating the likelihood that both houses of Congress will stay in Republican control.

What are the chances? Three political watchers recently agreed on the outcome — that the House will flip to the Democrats and that Republicans will retain control of the Senate.

Bill Rys, director of federal government affairs at Citi, stated during a mid-October webcast on the midterms that he’s “70% certain that the Senate remains in Republican control,” with the House flipping to the Democrats.

Greg Valliere, chief global strategist for Horizon Investments, stated his view in his mid-October Capitol Notes briefing that “a tidal wave election is unlikely; maybe there’s a high surf warning for the Republicans, who probably will lose the House — but new polls show that the GOP has a very good chance of retaining control of the Senate.”

For advisors, a critical seat to watch is who takes House Financial Services Committee Chairman Jeb Hensarling’s seat. The Texas Republican announced last year that he is not seeking re-election.

Neil Simon, vice president of government affairs for the Investment Adviser Association in Washington, told IA at press-time in mid-October that should ranking minority member Rep. Maxine Waters, D-Calif., take over Hensarling’s spot, “expect aggressive [Securities and Exchange Commission] SEC oversight,” with Waters taking SEC Chairman Jay Clayton “to task if the SEC’s expected standards of conduct rulemaking isn’t sufficiently protective of investors’ interests.”

David Grim, former director of the SEC’s Investment Management Division, stated in early October that he expects the SEC to vote on a final standards of conduct package for brokers and advisors likely during the first half of 2019.

Also he expects that the House, under Democratic control, “will prevent any further roll-backs of the Dodd-Frank Act.”

During the Oct. 12 Citi webcast, a quick-poll was taken of attendees on which candidate they’d vote for — Republican or Democrat — if the election for Congress were to be held that day. The results: 53.8% voted Republican; 46.2% voted Democrat.

That poll withstanding, “We think [Nov. 6] should be a pretty good night for Democrats,” Rys said. The “generic ballot has trended to favor Democrats over past few months.”

Midterms, historically, “have lower turnouts than general elections” Rys continued, with Republican vote turnout tending to be higher than Democratic voters.

“One thing that makes politics difficult is the mood changes dramatically,” Rys said, “but enthusiasm is with Democrats.”

Citi also performed a poll asking: What issue will most impact your vote in the upcoming election?

The results: Economy 43%; Trump 37.6%; and Healthcare, 6.3%

Valliere, for his part, offered his own midterm forecast, “subject to change.”

The Democrats “will gain between 25 and 35 House seats; they need 23 to regain control, actually a rather modest number by historical standards,” Valliere said.

His Senate forecast, meanwhile, “has shifted a bit, based on polls that show Republican Senate candidates have gained a point or two since the [Supreme Court Justice Brett] Kavanaugh hearings.”

Based on polls in North Dakota, Tennessee, Texas, Missouri etc., Valliere continued, “we think the GOP will add anywhere from one to three seats in the Senate.”

John Hudak, deputy director of the Brookings Institution’s Center for Effective Public Management, noted on a 2018 midterm podcast that 435 House seats are up this year — the entire House of Representatives — while one-third of the Senate seats are up.

While the Democrats need 23 seats to flip this year to take control of the House, “if you’re a Democratic voter, or a Democrat in Congress, you’d probably much prefer somewhere in the range of 35 to 40 seats flipping, so that you have a more comfortable majority. …the entire House of Representatives is up for re-election, with somewhere in the neighborhood of 70 competitive House seats this year,” Hudak continued, with about “63 to 65 of them being held by Republicans and Democrats are favored in most of those races.”

Senate Review The Senate is different, Hudak explained, because the Senate elects a third of its body every two years. “The group of senators who are up for re-election in 2018 were the senators who were elected when President Obama was re-elected.”

Because of that, “there is a bit of a Democratic hue to the candidates who are up this year in the Senate,” Hudak said. “There are 10 Democratic incumbent senators, or 10 Democratic seats, up for election this year in states that President Trump won.”

One issue Hudak will be watching closely as the midterms approach: The economy. Regarding the recent market volatility: “I won’t say that’s indicative of upcoming recession, but from a purely political perspective, perception is everything,” Hudak said. “If voters perceive that the economy is softening, even if it is not softening, the president and his party are held to account.”

If October ushers in a period of “bad stock market numbers — the president takes credit for good stock market numbers — so he puts himself in a tough position.”

Any other “negative economic news could also hurt the president’s party.”

Valliere, for his part, stated that while Trump’s approval rating has climbed by 4 or 5 points since late summer, “that could change in an instant, of course, if the markets continue to sell off or if the Saudi crisis leads to an energy price spike.”

Washington Bureau Chief Melanie Waddell can be reached at [email protected].


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