U.S. corporations that thrived under two years of a Republican-controlled federal government will likely avoid any significant policy shifts after Democrats wrested back a slim majority in the House of Representatives.
More intense oversight, however, could bring both key Trump administration officials and large financial institutions into Congressional cross-hairs. A battle over government funding might undermine growth at defense contractors while scrutiny of rising drug costs could heighten already increasing pressure on the pharmaceutical industry.
“At the federal level, this election’s legacy will be seen mostly in politics, not policy,” Justin Waring, a strategist at UBS Wealth Management’s chief investment office, said before the vote. “We see limited investment implications.”
The exception might be Silicon Valley, where bipartisan interest in topics like data privacy could drive legislative activity that impacts tech industry stars including social media firms.
There’s also a risk for financial markets. Election outcomes can skew economic confidence, Waring noted, warning investors not to let their political fears “overshadow their investment decisions.”
[Also read: US markets poised for gains after Democrats regain control of the House]
Below is a round-up by industry:
Tech titans
A wave of significant data breaches, along with damaging headlines about how technology firms are using customer information has made the protection of consumer data a top bipartisan goal in Washington.
Republican leaders in the Senate have promised to advance an initial privacy framework, and it could be one area where bicameral compromise is possible. Expected Democratic House Speaker Nancy Pelosi is reportedly planning legislation to launch a new agency to oversee the industry.
The Trump administration is simultaneously pursuing its own privacy framework at the behest of U.S. companies, which could make it easier to advance the controversial legislation in Congress.
Privacy advocates, however, fear tech-industry lobbyists would weaken any federal legislation enough that it serves merely to prevent them from having to comply with tougher state laws such as a bill recently passed in California.
The privacy issue has exacerbated concern over the response by Facebook, Google and Twitter to questions in the wake of President Trump’s 2016 election victory about how their platforms were used by Russian operatives to influence voters.
Earlier this year, Facebook disclosed that Cambridge Analytica, a consultant on Trump’s campaign, improperly gained access to data on 87 million of its users.
That came on the heels of credit bureau Equifax’s disclosure a year ago that hackers had stolen personal identification data on about 145 million people, a breach it didn’t disclose until months after the fact.
Against that backdrop, John Thune, a South Dakota Republican who chairs the Senate Commerce Committee, believes there’s bipartisan support for a federal law governing consumer data privacy, an issue addressed on a piecemeal basis by past measures including the Children’s Online Privacy Protection Act.
Whether a Congress made up of a Republican Senate and a Democratic House can agree on such legislation is another matter, Justin Antonipillai, the founder of data-protection firm WireWheel and an acting undersecretary for economic affairs in former President Barack Obama’s Commerce Department, told the Washington Examiner.
The odds of passing such a bill are complicated even further by the atypical alliances the issue creates.
“When I was leading a lot of the efforts by the Obama administration around domestic privacy legislation, one of the things I saw was that there are definitely strong alignments between some of the civil liberties groups and the Democratic side, and some of the corporate groups and the Republican side,” Antonipillai said.
The catch was that they didn’t “match up in the ways that you see on other big pieces of legislation,” he said. Some Democrats come from districts dominated by the tech industry and they’re worried about stifling innovation, while many Republicans have libertarian leanings “and they’re much more civil liberties-focused when it comes to privacy.”
Wall Street
The nation’s top financial institutions continue to benefit from the Republican-led tax cuts, while the Federal Reserve aims to ease some rules on larger regional banks instituted in the wake of the financial crisis more than a decade ago.
And revisions to the 2010 Dodd-Frank financial reform law passed earlier this year are already alleviating some reporting and capital requirements on all but the largest lenders.
None of the developments are under immediate threat if Democrats win back the House. While Pelosi and others have vowed to roll back the tax cuts, which lowered the top corporate rate to 21 percent from 35 percent, that would be nearly impossible with a Republican-controlled Senate and President Trump wielding veto power from the White House.
Unlike manufacturers, many banks paid close to the highest rate, which heightened the impact of the change.
Still, embattled banks like Wells Fargo could be subject to more oversight hearings under a House Banking Committee controlled by Rep. Maxine Waters of California. The likely next chairman is also expected to make oversight of the Consumer Financial Protection Bureau — a consumer protection agency created by Dodd-Frank — and Acting Director Mick Mulvaney a priority, according to law firm Alston & Bird’s Cliff Stanford.
Many Democrats have criticized Mulvaney for weakening the agency, which he sought to eliminate while representing a South Carolina district as a Congressional Republican.
“Mick Mulvaney’s leadership and staffing and things that have been done, she’s already proposed a bill to reverse all that,” Stanford said in a recent interview. “That will be a theme in terms of agency oversight that does impact big banks, as well as smaller banks and regional banks.”
But experts predict any additional scrutiny of Wall Street, which drew public ire over billion-dollar bailouts in the financial crisis when many voters lost their homes and unemployment spiked, would likely be minimal compared to investigations targeting White House issues such as Trump’s undisclosed tax returns.
Some lenders that have done business with Trump, like Germany’s Deutsche Bank, could be under particular pressure.
Drug companies
The already growing pressure from Washington on pharmaceutical companies might target the industry’s bruised reputation under a Democratic House instead of its bottom line.
As part of the Trump administration’s broader effort to rein in high drug costs, the White House has proposed tying reimbursement for drugs in the Medicare Part B program to international pricing, a plan Pfizer’s chief executive said “imports price controls from abroad into the U.S.”
For many drugmakers, trying to change, delay or even prevent that policy from taking effect will be a top priority regardless of which party controls Congress.
The drug industry staunchly opposes several existing plans by Democrats to rein in prescription costs – like allowing Medicare to negotiate payment for treatments — and slim margins in the House and a Republican-controlled Senate should prevent most from advancing.
In lieu of legislation, Big Pharma may, like Wall Street, face more rigorous oversight from House Democrats, especially if manufacturers opt to pursue major price hikes in January.
Between now and then, drugmakers will be pressuring the lame-duck Congress to reverse a measure passed earlier this year that will raise the portion of treatment costs that firms must cover in the Medicare Part D program starting in 2019.
Defense contractors
Top firms such as Lockheed Martin and Boeing have profited from a dramatic increase in U.S. military funding since Trump took office, but the $716 billion in this year’s budget is unlikely to carry over into fiscal 2020.
The Trump administration has said it will seek to cut military spending in that year’s budget to $700 billion. And Democratic Rep. Adam Smith of Washington, the expected next chairman of the House Armed Services Committee, previously blasted the higher funding levels this year and last as unsustainable.
That may make a Democratic takeover of the House much more significant now than in 2006, the last time it occurred, said Robert Spingarn, an analyst with Credit Suisse. Then the U.S. was still at war, and Congress had delegated much of the funding needs for it to then-President Bush.
Today’s upswing has been driven by a need to recapitalize the defense department, counter a resurgent Russia and a rising China, and that spending is exclusively under Congressional control, he explained.
“As such, further increases in Department of Defense budgets will hinge on accommodative representatives and senators being there to appropriate the money,” Spingarn said.
Still, Lockheed Chief Executive Officer Marillyn Hewson has told investors the company is confident spending could stay at higher levels given the desire to “modernize our military,”
Any increase in defense spending will likely require a new budget once the current agreement expires after Sept. 2019, creating a major showdown between Democrats and Republicans.
Democrats would be expected to insist on equal increases between defense and non-defense discretionary budget caps, and such a proposal could be difficult to advance in the House as well as the Senate, where Republicans still hold a majority.
