Why Policy Predictions Immediately After the Election Are Mostly Hot Air

I’m often asked, “What does a Harris or Trump presidency mean for investors?”

The simple answer is: It depends on what extent they are constrained by Congress.

Since 1993, five new presidents have come to office, and in every single case, his party also controlled both houses of Congress on Inauguration Day. (For history nerds, Sen. Jim Jeffords of Vermont switched from serving as a Republican to serving as a Democrat in May 2001, resulting in divided government.) That’s given incoming presidents about 18 months to push forward a partisan agenda before the midterm elections.

And many recent presidents’ signature legislative accomplishments—from the Dodd-Frank Act to the Tax Cuts and Jobs Act—passed through Congress during the first part of their terms. All recent presidents except for George W. Bush, a Republican, lost their Congressional majorities in short order, and with it, the ability to push forward major changes.

This recent history tends to shape how we think about the impact of a president: that they’ll make significant changes in their first year or two in office.

But it’s really just a historical quirk that incoming presidents have enjoyed their party running Congress.

As of the morning of Nov. 6, control of the House of Representatives likely won’t be known for several days or even weeks—and that result holds the keys to what kind of legislation incoming president Donald Trump will be able to push through.

Control of Congress Will Determine the Constraints the New President Faces

The current government is divided, with the Republicans controlling the House of Representatives and the Democrats controlling the Senate. But after the election, there are two possible outcomes to keep in mind:

• Donald Trump wins and governs with a unified Republican Congress.
• Donald Trump wins and governs with a divided Congress, in which Republicans control the Senate but not the House.

Presidents can do many things on their own—or at least they often take the position that existing laws give them the power to do the things they promised. However, there are policy changes that require Congressional action in our system of government.

A president cannot appropriate new money on his or her own. A president cannot rewrite the tax code on his or her own. Further, many of the powers granted by Congress to the president are debatable in their scope, and presidents find themselves in court, often losing, over interpretations and uses of executive authority.

The bottom line: Hot takes immediately after the presidential election that do not consider Congress are mostly hot air.

We will have a change in administration on Jan. 20, but we will not know who will be running the country with president-elect Trump just yet. That’s because competitive House districts are in the states of New York and California, which count their ballots extremely slowly. In the last election cycle, it took more than two weeks to officially call all the House races and about eight days to have certainty on which party controlled the House of Representatives.

Concluding Thoughts

These structural realities are important to keep in mind if you’re looking to invest based on the results. Even if you knew with certainty who would be president on Jan. 20, that really wouldn’t be enough to predict what’s next for public policy.

Legislating, of course, is messy and difficult to predict, although I will make some predictions once the House election results are all tabulated.

Finally, as my colleague John Rekenthaler has pointed out: Presidents often do things that aren’t expected, confounding investor expectations.