Democrats carry the House and Senate! Socialists gain credibility. Trump faces regular investigations—maybe impeachment—and hostile legislation. He may veto Democratic legislation regularly and the Supreme Court may declare it unconstitutional. Mr. Gridlock will likely be the biggest winner and he will block economic legislation in any direction. With a divided government, how will investors fare?
Ignoring deficits, Democrats favor spending intensive programs like Medicare and housing subsidies, while MAGA survivors prate on about markets while promoting favored industries like crypto and nuclear. AI development may slow with NIMBY opposition protected by Trump vetoes. A gridlocked government will have trouble shoring up Social Security and Medicare systems on path to bankruptcy—though their salvation might win bipartisan support.
Seeking Consensus to Defeat Gridlock
War: A Democratic Congress may defend affordability with a full-throated refusal to finance Iranian war. But immediate exodus could lead to Iranian nukes and costly Iranian control of the Straits (until new land pipelines reduce tanker traffic). Makes me wonder if Democrats will retain power? America also needs new defense technology and shipbuilding capacity, and we skeptically hope Gridlock can raise anchors.
Affordability and Budgeting: The best way to stop inflation would be a balanced federal budget—no net bond selling or money creation—and aggressive Federal Reserve interest increases likely to cause an immediate recession. Mr. Gridlock won’t do anything so bold. Worse, budget battles may become cataclysmic firestorms, and failed consensus may wreck faith in the dollar. Stocks did not fall in the recent budget battle, but failure to conclude shutdown crisis could mean defaulted payments, credit crisis and permanently high debt payments. Bondholders beware!
Healthcare: An emboldened Democratic Congress might seek not just enhanced Medicare Subsidies but Medicare for all. Trump has savored small prescription cost victories while failing to stridently defend Health Savings Accounts with low-cost Bronze plans. With irreconcilable differences, Gridlock should prevail.
Education: With intense Chinese competition and dramatic AI changes, consensus might be won for higher educational standards and victory in international TIMMS testing. But many of these issues are local and the irreconcilable struggle seems to be vouchers versus unions. Gridlock should prevail.
Energy: With limited and pricey energy, we could lower prices fastest and best maintain independence by following China’s lead—by simultaneously developing MAGA oil, gas and nuclear energy right alongside green solar and wind energy while removing power line regulations everywhere. Bipartisan effort could do this with markets gleaming; but Gridlock should prevail.
Housing: Housing projects or expanded Section 8 subsidies are the most direct ways to help the poor, but neither housing for the poor nor the middle class will be built without reducing local zoning and building code impediments that block even ADU construction.
Locking in the Status Quo
Mr. Gridlock will lock in the Big Beautiful Bill as the basis of our domestic tax and spending with its scattered tax cuts, Medicare slicing and gargantuan deficits. With a better legal foundation in Section 301, Trump Tariffs should survive. Anticipating Democratic victory, Republicans guaranteed ICE funding. Dirty fuels may get their last political favors ever, and I would reconsider solar or wind revival investments long term. Healthcare stocks prospered with Obamacare but might suffer with Medicare for all.
Trump might reverse his failed presidency with compromise and bipartisan legislation and he quickly stated he doesn’t “want to be just sitting there for two years vetoing everything”—but he previously called himself “Mr. Veto.” I doubt Trump’s sincere wishes for cooperation because he ignored Congress’s bipartisan housing affordability bill, hoping to bargain for partisan corruption in its place. Foreseeing challenges, Trump secured DHS funding for border security and high walls for two years. Frustrated domestically, will he return to war to erase a legacy of failure? Trump grows old.
Mr. Gridlock won’t stop Trump from betraying democratic allies and supporting authoritarian enemies who sell dirty fuels. Yet our military appears faithful to the Constitution and mixed government will discourage illegal behavior. Compromise on new Supreme Court justices will be needed if any are appointed. As Americans, I hope we all can celebrate the triumph of our Constitution in a peaceful transfer of power.
With policy extremes unlikely, CNN suggests investors concur with my optimism on Nov. 5: “Investors also warmed to the prospect of policy gridlock under a divided government, which can curb excess spending and create a more predictable outlook for markets. The VIX, which measures expectations for volatility, sank almost 20%.”
Robert Arne, EA, CFP, MS, of Carpe Diem Financial Life Planning, gives holistic financial advice as his client’s fee-only fiduciary. He serves mostly Santa Cruz Mountain dwellers. These articles must not be read as personal financial, mortgage, tax or investment advice; consult appropriate professionals. Learn more at www.carpediem.financial.
