We do expect bipartisan policy support to businesses when it comes to additional infrastructure spending (USD200bn financed by increased taxes on gasoline), regulation (negative for the pharmaceutical sector, positive for the financial sector), and to a lesser extent, further tax cuts (resinstatement of State and Local Taxes deduction, and new Qualified Opportunity Zones).
There will be strong opposition on voting on the budget with foreseeable last minute gridlock and shutdown risks. Federal deficit and debt will continue to increase, leading to a tightening of financial conditions and higher recessionary risks. As a result, the probability of a recession could increase from 15% to 25% by the end of 2019. Leveraged businesses such as utilities and materials could suffer.
On trade and immigration, softening and compromises could come from from the change in the political landscape. This could benefit the agriculture sector (tariffs, and workers’ visas), wholesale and retail sectors, as well as business with China more generally.