by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
Author: Greg Valliere
May 4, 2021
IT’S WAY TOO EARLY to make a definitive call, but it looks like Republicans have a decent chance of capturing the House in next year’s elections.
THE GOP NEEDS ONLY five net seats, a total they could reach simply through post-census redistricting in Republicans-controlled legislatures. Democrats had hoped to reach a runoff in Texas last week but even that modest goal failed; two Republicans will face each other in the Texas 6th district.
MORE IMPORTANT ARE HISTORICAL TRENDS that show a first-term president almost always suffers mid-term election losses in the House and Senate (the latter is now tied, 50-50, and looks like a tossup in 2022 — too close to call for months to come).
ASTOUNDINGY, THE PARTY CONTROLLING THE WHITE HOUSE has suffered House losses in 37 of the last 39 mid-term elections. How’s that for a clear pattern? Only Franklin D. Roosevelt in 1934 and George W. Bush a year after 9-11 managed to gain House seats.
THE TWO KEY VARIABLES: First will be President Biden’s job approval rating — which is good but not great, in the mid-50s. His popularity may rise as the economy blasts off this spring (nonfarm payrolls are expected to far exceed 1 million new jobs on Friday). But we sense an undercurrent of public dissatisfaction over the price of gasoline, a wild card for any president.
THE OTHER VARIABLE is whether the Republicans can patch up their ugly internal battle over Donald Trump. We’re hearing that Minority Leader Kevin McCarthy has decided to dump Liz Cheney, the third-ranking GOP House member and a fierce critic of Trump. Cheney could be ousted as House Republican Conference Chair by Memorial Day, insiders believe.
BOOTING CHENEY WILL GIVE DEMOCRATS a chance to tell moderate voters that the Republicans are extremists, but Trump’s influence on GOP is remarkable. He will lead a chorus against immigration, big government and high taxes — and that might be enough for the Republicans to take the House by a few seats.
BIDEN AND MOST DEMOCRATS know they face a close election next year, which is why the President is determined to move quickly on his next three measures: infrastructure, tax hikes and social spending. But the latter two bills will be difficult to enact, with a battle perhaps dragging through the fall — or longer — as Democrats squabble over issues like the state and local tax (SALT) break.
A REPUBLICAN HOUSE and a (just barely) Democratic Senate would be a prescription for gridlock and an end to big spending bills. The window to act may begin to close; Democrats concede in private that they could lose the House next year.
SO THE DEMOCRATS WILL MOVE QUICKLY if there’s no bipartisan deal by June on infrastructure, taxes and social spending. Democrats cling to a hope that they can kill the filibuster and use reconciliation to pass their agenda this year; unfortunately for them, not all of their Senators may go along. An even tougher slog looms for the Democrats after the 2022 elections.
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