November 10, 2024
By Thomas Dee, Capstone’s Head of Research and Strategy
Capstone believes, as we penned last week, Donald Trump’s second term will not be like his first. President-elect Trump’s overwhelming mandate and ability to allow easy confirmation of his people to key positions mean the power of institutions to counteract executive power will be tested like never before, and the next four years will see unprecedented policy changes.
As the dust continues to settle, here we explore key unfolding questions that we are closely monitoring.
Which party will control the House?
Af of this publishing, Republicans look likely to retain a slight House majority. Twenty races remain uncalled by the Associated Press, of which Democrats would need to win 15 to gain the majority, compared to just five for Republicans. Decision Desk, which maintains a statistical model, gives Republicans an 80% chance of retaining the House majority. It’s very likely, but not certain, that Republicans maintain control of the House.
How will the Senate operate under Republican control?
In the Senate, only one race is still to be called: the race between Ruben Gallego (D) and Kari Lake (R) in Arizona, where Gallego leads by 1.5 points with an estimated 87% of the vote counted. If this holds, Republicans will hold a modest 53-47 Senate majority for the next two years – less than the 55 or 56-seate majority that seemed possible the day after the election.
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This coming Wednesday, November 13th, the Republican Senate is holding a secret ballot to elect the Senate majority leader. Three Republicans are in the running: Sens. John Thune (SD), John Cornyn (TX), and Rick Scott (FL). Thune and Cornyn are long-time allies of outgoing GOP leader Mitch McConnell (KY), while Scott, who unsuccessfully challenged McConnell for the post two years ago, is a close Trump ally. We would view a Thune or Cornyn victory as a win for Republican traditionalists (for example, both have publicly said the filibuster should be protected), while we believe Scott would even more fully prioritize President Trump’s agenda in Congress.
Process-wise, to win, the Senate majority leader will need a simple GOP majority. If no candidate receives a simple majority on the first vote, the process will repeat with just the top two candidates. This is the key development to watch this week, alongside further momentum on the selection of Trump’s cabinet and other posts.
Who will Trump nominate to key cabinet and regulatory posts?
The adage that personnel is policy is especially notable in a Trump White House. This week, various media outlets frequently reported names in the running for key Trump positions. See the latest from the New York Times, the Wall Street Journal, and Politico. Overall, reporting aligns with our view that Trump prioritizes loyalty in his appointments, seeking to prevent the rampant in-fighting within the GOP in his first term. This will be especially true for agencies such as the Department of Justice (DOJ) and Department of Homeland Security (DHS) where Trump was most frustrated with his subordinates’ commitment last time around.
To what extent will Trump execute on his campaign promises?
We expect Trump to execute most of his high-profile election promises (or, at a minimum, do enough that he can assert he executed his promises), especially with GOP control of Congress.
Trump will try to accomplish what he can administratively. This will include substantial deregulation across sectors, expanded tariffs, increased border enforcement and deportations, and a significant shift in US foreign policy. However, some items will require Congressional action – most notably tax and spending policy. The GOP’s thin House majority, assuming they maintain one, will inevitably lead to in-party jostling as representatives have disparate views on items ranging from tax policy (see the state-and-local tax deduction as a good example) to the magnitude of a spending increase for immigration enforcement. However, the GOP has become Trump’s party in a way that it wasn’t in his first term, and we expect the GOP conference to provide him with ample deference in many areas.
An important question is whether there will be a block of moderate or traditionalist Republicans who do not fall in line with the President-elect. For example, among those who have publicly or privately jostled with Trump include McConnell (who plans to serve out his term through January 2027 despite stepping down as Senate GOP leader), Sens. Lisa Murkowski (AK), Susan Collins (R-ME), and Mitt Romney (R-UT). Sen. Bill Cassidy (R-LA) also joined Murkowski, Collins, Romney, and three now-retired Republican Senators in voting to convict Trump following his second impeachment.
Capstone will be closely following these macro level developments alongside implications for “micro-policy” – that is, regulation, legislation, enforcement, and their implications for companies.
Thomas Dee, CFA, Head of Research and Strategy
