Business Likes Prospect of Split Government — and More Gridlock
Investors, executives and lobbyists had feared the U.S. election would hand Democrats both the House and Senate. But with Capitol Hill now heading toward what looks to be another four years of divided government, big businesses that prefer congressional gridlock to sweeping reform are breathing a sigh of relief.
Republicans are well positioned to keep control of the Senate as Democrats hold the House, though it’s not yet set in stone with some races still unresolved. A likely split legislature would dim the prospect of new, widespread regulation — including increased corporate taxes — that could impact the technology, health-care and retail sectors, among others. That helped buoy the market on Wednesday in the face of continued uncertainty about the presidential outcome.
“The fact that the Republicans are holding the Senate and increasing their votes in the House is giving business comfort there’s not going to be any dramatic change,” said Trump campaign advisory board member Andy Puzder, who’s also the former chief executive officer of Hardee’s ownerCKE Restaurants Inc. “When government can’t do anything, there’s a division, and that’s a positive for business. Because quite honestly, the less government does for business, the better.”
Despite continued uncertainty around the presidential race, investors eagerly shored up stocks on Wednesday, sending major indexes to their biggest rallies in months. The Nasdaq 100 surged the most intraday since April, while the S&P Supercomposite Managed Health Care Index, a benchmark of insurers, hit a record led by Anthem Inc., UnitedHealth Group Inc. and Humana Inc.
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“You’re looking at a divided government, and mostly a continuation of the status quo, and from the perspective of pharma or managed care, honestly that’s pretty good,” said Spencer Perlman, director of health-care research at consulting firm Veda Partners LLC. He said a Republican-held Senate would squash future prospects of H.R. 3, a Democrat-backed bill that would direct Medicare, the U.S. government health program for the elderly and disabled, to set drug prices based on an index of what other developed nations pay.
“From the perspective of pharma, I don’t want to say it’s ‘risk off,’ but there’s substantially less risk than even 24 hours ago,” Perlman said. Instead, a divided Congress will have to turn to less-controversial reforms.
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Evercore Inc.’s Ralph Schlosstein, one of Wall Street’s higher-profile Democrats and a former adviser to President Jimmy Carter, agreed the stock market’s performance Wednesday serves as an “endorsement” of a divided U.S. government that’s unlikely to crack down on big business.
While Schlosstein believes the lack of a blue wave means a smaller stimulus package, it also probably means less aggressive regulation, he said Wednesday in a Bloomberg Television interview. “It probably means more compromise on the tax plans if Biden is elected” than Democratic control of Congress would have allowed in “the corporate-tax rate, capital-gains rates.”
Maintaining the status quo will also allow consumer spending to continue unfazed, particularly as the critical holidays approach, said Craig Johnson, president at retail analysis firm Customer Growth Partners.
“No matter what happens with the presidential race, the fact that the Senate looks to stay Republican and the House Democratic suggests that nothing too extreme would be passed into law affecting future spending, much less spending for this Christmas,” he said. During the final two months of the year — the traditional peak of holiday shopping season — spending will rise 5.8% to a record, he said, and the election doesn’t look likely to change that. “Consumers have a lot of ‘dry powder’ money to spend.”
— With assistance by Sonali Basak, Leslie Patton, Justin Sink, and Cristin Flanagan
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