How Wall Street Is Sizing Up Paul Ryan's Departure as Speaker

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(Bloomberg) -- House Speaker Paul Ryan’s departure from Congress is the latest signal that GOP could lose its grip on the House, shifting the pendulum in Democrats’ favor. Policy analysts are split on what it could all mean for markets, with Evercore ISI’s Terry Haines saying that investors will probably take it as a negative while Horizon Investments’s Greg Valliere sees a potential return to gridlock, which won’t be a bad outcome for markets.

Experts point out that it’s not only House Republicans who face a leadership battle. The future of House Democratic leadership is also in doubt as House Minority Leader Nancy Pelosi sees pressure from younger incumbents, according to Beacon Policy Advisors.

Here’s what policy analysts are saying about the latest changes in Washington:

Horizon Investments, Chief Global Strategist Greg Valliere

  • "It sure looks like the Democrats will recapture the House this fall. If not quite a ’wave’ election, a policy change is coming in 2019-20" even if the Senate stays Republican, which is the safest (but not certain) bet
  • Envisions four scenarios after midterm elections:
    • 1. Gridlock: prospects for an infrastructure bill are fair, but everything else looks unlikely. "This is not a bad scenario for the markets, which generally like gridlock."
    • 2. Impeachment and investigations: House Democrats would investigate every conceivable transgression by the Trump Administration, and the left would insist on an impeachment vote." However, most of the party’s moderates think impeachment could backfire
    • 3. "What WON’T happen:" the new tax cuts won’t get repealed; Trump still has veto power
    • 4. Even if Democrats take the House, the president should be able to prevail in the Senate on judicial appointments. And he would still have executive power to wage wars, alter trade deals and reform regulations

Beacon Policy Advisors

  • With so many variables going against House Republicans, Ryan’s exit is "just a further signal" pointing towards a midterm election where the Republicans lose their 23-seat House majority
  • The number of House Republicans who are retiring at the end of this term now reached 39, compared to 18 retirements for House Democrats
  • Notes that either Kevin McCarthy of California or Steve Scalise of Louisiana would be a departure from the policy-centered role that Ryan had cultivated; the post-Ryan GOP party "will only be more acquiescent to Trump and his whims," especially if it moves into the minority

Deutsche Bank, Chief International Economist Torsten Slok

  • Says the U.S. midterm elections "come up more and more frequently" in client conversations, as the latest data show that a record number of Republicans and many Democrats are not seeking re-election in November


CFRA, Chief Investment Strategist Sam Stovall

  • Believes it increases the likelihood that Republicans will lose control of the House, reducing the possibility of dangling additional "economic carrots, like tax reform" in front of investors to push stocks higher; future advances will likely be driven by EPS growth and interest rates
  • Says 2018 is not too different than prior midterm election years, which have traditionally experienced higher volatility and lower returns


Veda Partners, health-care policy analyst Spencer Perlman

  • Doesn’t think there will be any meaningful near-term impact on healthcare, largely because Congress wasn’t likely to do anything this year anyway
  • Longer term, this could make it more difficult for Republicans to push conservative-leaning healthcare payment reforms like premium support in Medicare. It becomes "incrementally harder without Ryan, who is a true believer and an articulate proponent of the policy."

NOTE

  • Earlier, Ryan: Glad to Hear Scalise Said McCarthy Should Be Next Leader

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