Markets love election results, but split government to impact policy

The Dow Jones soared more than 1,200 points by midday Wednesday after mid-term election results gave Democrats control of both the House of Representatives and the Senate.

Political analysts and party leaders point to a fierce public rejection of the administration's economic policies, specifically targeting recent Department of Government Efficiency (DOGE) budget cuts and aggressive trade tariffs.

"Trump's policies unleashed economic Armageddon," noted Kansas Democratic Party Chair Jeanna Repass, highlighting that voters consistently prioritized economic concerns and Washington corruption at the ballot box.

The divided government in 2027 will significantly affect taxes, spending, and related issues and economic concerns for the financial services industry. Many trade associations and companies were quick to comment on the election results.

According to analysis from TD Cowen, healthcare policy will take center stage under the newly configured Democratic Congress.

"There will be an intense intra-party debate on the best healthcare strategy next Congress and into the 2028 presidential race, but no matter the approach there is headline risk for most of healthcare (other than Medicaid and hospitals)," the financial firm wrote.

Passage of major healthcare reforms is "very unlikely," TD Cowen said, and even medium-sized policies, like rollbacks of Medicaid SDP cuts or restoring ACA subsidies, are "an uphill battle."

That does not mean that newly elected progressives will not try, the firm added. Sen. Ron Wyden, D-Ore., is in line to become chairman of the Senate Finance Committee, which will hold the pen in the Senate on big healthcare policies.

Wyden has been a "Medicare for All" holdout, but recently endorsed the Sen. Bernie Sanders bill.

"This is a powerful signal that even long-tenured moderates are under pressure to have a vision that reimagines [healthcare]," TD Cowen noted.

Olive branch extended

President Trump attempted to distance himself from the blame, stating he did not view the midterm results "as a hit on me." While hinting at potential gridlock, Trump affirmed he would attempt to work with the newly minted Democratic majority, stating he didn't "want to be just sitting there for two years vetoing everything."

Marc Cadin, CEO of Finseca, called "financial security for all" a nonpartisan goal that both parties can support.

“Americans sent a clear message in this historic election: they’re worried about their financial futures," Cadin said.

"Elections change who holds the gavel, but they don’t change the math. Rising debt, growing interest costs, and a Social Security program headed toward insolvency are what we call the Perfect Storm, and it will reach American families no matter which party is in charge."

Most industry trade associations posted congratulatory messages similar to that of the National Association of Insurance and Financial Advisors: "We are eager to build new relationships, strengthen longstanding ones and share the expertise and perspectives of insurance and financial professionals across the country."

Dale Brown, president and CEO of the Financial Services Institute, went a step further with a public statement that reminded new lawmakers of the group's priorities:

Protect advisors’ independent contractor status, preserving independent financial advisors’ choice to operate as independent business owners;

Protect seniors and vulnerable investors from financial exploitation and fraud;

Promote financial literacy to help Americans make informed decisions about their financial futures; and

Modernize and harmonize regulatory requirements at the federal and state levels to reflect evolving business models and emerging technologies, including artificial intelligence.

"As always, we remain committed to working constructively with policymakers on both sides of the aisle to advance commonsense solutions that protect Americans’ access to sound, professional financial advice," Brown added.

Potential issues on the table

In a post-election column, LPL Financial Chief Equity Strategist Jeff Buchbinder wrote that "divided government takes major sweeping tax and spending policies off the table and halts any of the more extreme policies of the political right and left."

But many issues of interest could still be addressed by the new Congress and President Trump, he added.

Here are several important policy implications from dividend government that could matter for select market segments, Buchbinder wrote:

Healthcare (Medicaid spending cuts) and consumer staples (SNAP funding). The major congressional questions surrounding these programs are how the timing of scheduled subsidies could affect consumer spending on the edges through a potential reversal of cuts to supplemental nutrition programs from a blue wave. A cohesive Democratic majority could also delay or reverse some healthcare spending cuts, potentially providing support for healthcare services while adding a bit to consumption in 2027 (Morgan Stanley estimates effects of 0.1% to 0.4%). Drug pricing will continue to get headlines, but the rules of the road limit price increases are already in place.

AI and data centers. AI and data center construction have become a very important post-election policy story. In divided government, the policy implications at the federal level may be limited, but data center policy decisions sit at the state and utility-commission level, making gubernatorial and utility races important alongside Congress, particularly Governor Abbott’s loss in Texas. LPL Research continues to expect the buildout to occur but strong performances by Democrats in key data center states (and pushback from the not in my backyard folks) may slow it down some, potentially increasing regulatory pressure on AI infrastructure stocks including semiconductors, machinery, and power generation.

Defense. Defense could benefit from bipartisan compromise, but gridlock creates funding risk. The possibility of a bipartisan budget deal in which Democrats get healthcare-related priorities while Republicans get additional defense funding does exist. Without a deal, repeated continuing resolutions would create a more difficult funding backdrop. This may be wishful thinking, but the upside potential for defense contractors seems feasible.

Banking deregulation. We do not expect the election results to reverse the trend of banking deregulation by the Trump administration. However, the strong performance by the Democrats will likely slow it down. Companies might try to rush mergers and acquisitions through in 2027 before the regulatory environment potentially gets tougher in 2028.

Treasury yields. Under gridlock in Washington, more fiscal expansion than is already on the books is unlikely. Another reconciliation bill to increase spending would have required a Republican sweep. On the other hand, divided government may imply less Treasury supply pressure and tempered rate volatility.

Tax and wealth transfer proposals could advance

Changes to capital-gains, estate and wealth-transfer rules could receive greater attention in Congress. For high-net-worth families, it’s important to review estate and wealth-transfer plans regularly and avoid making major decisions based solely on proposals that may not become law, said Nancy DeRusso, head of client solutions at Guardian.

She said retirement policy could continue to reflect bipartisan interest in expanding access to retirement savings and lifetime income, alongside greater scrutiny of tax-favored accumulation, fees, conflicts of interest, rollovers, and alternative investments in retirement accounts. Proposals affecting very large retirement balances could also receive renewed attention.

Business policy would likely become more targeted, with more emphasis on smaller operating businesses, industry-specific credits, simplified tax compliance, and retirement-plan incentives.

DeRusso said advisors should help clients build plans that can withstand a range of policy scenarios rather than reacting to every headline. Social Security reform will continue to be debated, but significant changes would require broad political agreement. The best approach is to plan around what clients can control while maintaining flexibility as policy evolves.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.