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Monthly Investment Outlook - Control of Congress is crucial

Wells Fargo Investment Institute - October 2020

Presenter: Michelle Wan, CFA, Investment Strategy Analyst, Wells Fargo Investment Institute


Title graphic: Control of Congress is crucial

Who controls Congress will be a crucial outcome of the upcoming election. We continue to believe that the House of Representatives will remain in Democrat control, but expect the Senate to be controlled by whichever party wins the White House. Control of the Senate is especially important because it may increase the probability for the president to pass tax policy changes and spending bills.

If Republicans keep the Senate, we should expect them to propose new tax cuts, and to make the existing ones permanent. If Democrats win, we could expect them to propose an array of tax increases, and to limit hydrocarbon production and usage, while increasing spending on infrastructure and health care. But, no matter who wins, it will be important to watch to see how power divides between the factions in the majority party — in each chamber of Congress. Both Democrats and Republicans have moderates and more ideological points of view within their party. These divisions may make it more difficult to pass the more controversial ideas.

It will take at least the first quarter of 2021 to see the legislative agenda, and to see the compromises needed to pass legislation. So, for now we favor aligning investment portfolios with our current guidance, which takes into account the economic trends we think will guide policy, no matter who wins the elections.