These two things are clear:
1) Republicans control Congress, or at least they will shortly
2) We don’t know exactly what Republicans want
The market is finding out the hard truth that the Republican party is a group of loosely-connected lawmakers that are seemingly only united by their hatred of Democrats. There are fiscal hawks and those that don’t care about the deficit. There are MAGA Republicans and classic free-market conservatives. There are war hawks and isolationists.
All of this is with a very narrow House majority and little breathing room in the Senate. I wrote yesterday that most market watchers were over-estimating how much impact the Fed had on the market selloff and underestimating how much was because of Congress.
I think we’re seeing more of that today with futures down 1% following the failure of yesterday’s efforts to prevent a government shutdown.
The bill never had a chance to get a needed two-thirds majority but what was surprising was that 38 House Republicans voted against it.
That puts long odds on avoiding a government shutdown at midnight on Friday.
But that’s not the real problem.
The market was pricing in a Republican-controlled Congress that would be market-friendly. Instead, we’re starting off with a fiscal battle and Republican dis-unity. Elon Musk is dictating policy via Twitter and the House leader had his bi-partisan efforts torpedoed.
Politics is hard to predict so maybe this gets back on the rails — I truly believe that passing a corporate tax cut gets done — but as of right now the entire post-election rally has been wiped out.
Spoos daily