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DB - The Midterm Elections and Implications For The US Economic Outlook
DB - The Midterm Elections and Implications For The US Economic Outlook
Research
DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 051/04/2021. UNTIL 19th MARCH 2021 INCOMPLETE DISCLOSURE
INFORMATION MAY HAVE BEEN DISPLAYED, PLEASE SEE APPENDIX 1 FOR FURTHER DETAILS.
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Since our last preview, the GOP advantage in the House has narrowed
slightly. Democrats are now slightly favored to win the Senate.
The expiration of Trump tax cuts will be a huge issue for the 2024 election cycle
House
Senate
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What are the forecasters saying? Real Clear Politics sees similar
outcomes for the House and Senate.
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Views on Trump have not changed all that much.
High inflation is currently driving the misery index higher Views on gov’t policy less correlated with S&P500 more recently
% % % chg,
Misery index (ls) S&P 500 composite (ls) %
12q, AR
Consumer opinions about Govt economic policy: good job (rs) Consumer opinions about Govt economic policy: good job (rs)
24 50 30 50
Correlation= -0.48 Correlation=0.4
20 40 20 40
16 30 10 30
12 20 0 20
8 10 -10 10
4 0 -20 0
75 84 93 02 11 20 75 84 93 02 11 20
Dem sentiment surged post the 2020 election but now fading Government spending and taxes are usually the biggest complaints
Index Index Index Categorical US economic policy uncertainty index Index
Index of consumer sentiment
Q1-66=100 Q1-66=100 1985-10=100 Govt spending (ls) Taxes (rs) 1985-10=100
Independents Republicans Democrats 600 400
135 135
500
115 115 300
400
95 95 300 200
75 75 200
100
55 55 100
35 35 0 0
16 17 18 19 20 21 22 85 94 03 12 21
Source: BLS, University of Michigan, S&P, PolicyUncertainty.com, Haver Analytics, Deutsche Bank
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The issues: The majority of voters disapprove of SCOTUS reversing
Roe v. Wade and they also think Congress can address it.
OMB projecting higher taxes relative to CBO baseline OMB and CBO projecting similar spending as share of GDP
% GDP CBO baseline as % of GDP: revenues, fiscal years % GDP % GDP CBO baseline projections as % of GDP: outlays, fiscal years % GDP
Federal receipts as % of GDP, fiscal years
20 20 Federal outlays as % of GDP, fiscal years
32 32
19 19
18 18 28 28
Correlation= 1.0
17 17 24 24
16 16
Correlation= 0.96 20 20
15 15
14 14 16 16
65 70 75 80 85 90 95 00 05 10 15 20 25 30 65 70 75 80 85 90 95 00 05 10 15 20 25 30
OMB projects lower deficits compared to CBO CBO projects discretionary spending to decline
% GDP CBO's baseline deficit/surplus as % of GDP, fiscal year % GDP % GDP CBO baseline as %of GDP, fiscal year % GDP
Federal surplus/deficit as % of GDP Mandatory spending Discretionary spending
4 4 24 Net interest
24
0 0 20 20
-4 -4 16 16
12 12
-8 -8
Correlation= 0.99 8 8
-12 -12 4 4
-16 -16 0 0
65 70 75 80 85 90 95 00 05 10 15 20 25 30 65 70 75 80 85 90 95 00 05 10 15 20 25 30
Republican Presidents: S&P500 performance pre- / post- midterms Republican Presidents:10-yr yield performance pre- / post- midterms
Democratic Presidents: S&P500 performance pre- / post- midterms Democratic Presidents: 10-yr yield performance pre- / post- midterms
Index
Oct 31 = 100 S&P500 (D) bps 10-year Treasury yield (D)
140 200
130
100
120
0
110
100 -100
90
-200
80
70 -300
-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12
1994 1998 2010 2014 Median 1994 1998 2010 2014 Median
Note all S&P500 series indexed to October 31 and show month end close. 10-yr yield is basis-point change before / after October 31
Source: S&P, Treasury, Haver Analytics, Deutsche Bank
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Event study of S&P 500 and 10-year yields in the 12 months before
and after the last 10 midterm elections – no clear patterns.
Presidents losing both: S&P500 performance pre- / post- midterms Presidents losing both:10-yr yield performance pre- / post- midterms
Index 10-year Treasury yield (Losing)
Oct 31 = 100
S&P500 (Losing) bps
300
140
130 200
120 100
110
0
100
90 -100
80 -200
70
-300
-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12
-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12
1986 1990 1994 1998 1986 1990 1994 1998
2006 2014 Median 2006 2014 Median
Presidents retaining at least one house: S&P500 performance pre- / Presidents retaining at least one house: 10-yr yield performance pre-
post- midterms / post- midterms
130 300
120 200
110
100
100
0
90
-100
80
-200
70
-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12
-12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12
1982 2002 2010 2018 Median 1982 2002 2010 2018 Median
Note all S&P500 series indexed to October 31 and show month end close. 10-yr yield is basis-point change before / after October 31
Source: S&P, Treasury, Haver Analytics, Deutsche Bank
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DB forecasts for US economy
Unemployment rate,
% 3.8 3.6 3.6 3.7 3.9 4.3 5.2 5.6 5.5 5.2 5.0 4.6 3.7 5.6 4.6
Prices (% yoy)
CPI 8.0 8.6 8.3 7.2 6.0 4.2 3.9 3.9 3.5 3.3 3.1 2.9 7.2 3.9 2.9
Core CPI 6.3 6.0 6.3 6.2 5.6 4.9 4.4 3.8 3.5 3.2 2.8 2.6 6.2 3.8 2.6
PCE 6.4 6.6 6.1 5.3 4.6 3.5 3.5 3.4 3.1 2.9 2.6 2.5 5.3 3.4 2.5
Core PCE 5.3 5.0 4.8 4.9 4.5 4.3 4.0 3.4 3.0 2.7 2.3 2.2 4.9 3.4 2.2
Fed Funds 0.375 1.625 3.125 4.375 4.875 4.875 4.875 3.875 3.375 2.875 2.625 2.625 4.375 3.875 2.625
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The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject suer and the securities of the issuer. In
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