What’s at stake in the midterm elections?
Matt Miller
Political Economist
Clarke Camper
Executive VP, Government Relations

With both chambers of Congress up for grabs, the 2022 midterm elections could have significant implications. Political economist Matt Miller and executive vice president, government relations, Clarke Camper discuss how a shift in the balance of power could renew debt ceiling risks, affect political and judicial appointments, as well as increase scrutiny of policy trends, such as ESG (Environment, Social and Governance). There may also be areas of common ground, including defense and China. 

Date recorded: Thursday, October 6, 2022

Clarke Camper: Thanks everybody for joining us. We really do, uh, appreciate, uh, we know you're busy and you have a lot of different information sources and we're really pleased that you're, uh, sharing your time with today.

So, Matt and I are gonna have a bit of a back and forth. Um, we'll at least start by each making comments about a couple different categories and then we'll go from there. Um, I'll start first by making some comments about the upcoming election, what polling says, what, what we should expect, and I'll kick it over to Matt. We'll talk a lot about what the various outcomes would be for investors and then we'll go from there.

Um, in terms of the election, uh, the, if you, you believe the polls, uh, best source that I know of to go to is It aggregates information. It- it's got a really great track record and says that, uh, Republicans are likely to, uh, to take the House. Let me get the number here. It is 69% chance that they win the House and the, in the Senate, Democrats have a 68% chance to retain control of the Senate.

Um, I disagree with both those (laughs) in different ways. Um, my view is, and I'll talk a little bit more about this in a second, but my view is that the House is gone for Democrats. So, this idea that there's a 31% chance the Democrats might, uh, you know, maintain control of the House, I think it's more like maybe 5% or 10%. Um, and in the Senate, I think it's absolutely a jump ball to say that the Democrats have a, you know, 68% chance, uh, of retaining control of the Senate, to me, is, is, again, really overoptimistic for Democrats.

So, why do I say that? I think that the, the, uh, in, with regard to the House, um, views of Democrats, and [President Joe] Biden in particular, I want to be clear, we're not partisan. We do not mean these as political statements. But analytically, I think, you know, the cake is baked. I think most Americans, uh, are concerned about inflation, they're concerned about border control issues. Um, I think those things lean heavily towards, uh, Republicans and that says to me that, in the House, the idea that, that, uh, you know, there's a good chance Democrats might retain is not... Obviously, I don't agree with that.

Question for me in the House, really, is what's the margin of control? So, uh, Republicans only need to win five seats to take control. If you go to the Cook Political Report, I don't know how many of you are familiar with that, but that's another bipartisan, uh, source that has good information, they say that in the House, out of 435 seats, there are 30 that are tossups. So, if you have to win five seats to gain control of the House, then it says th- that Republicans only need to take 20% of those tossup seats to, uh, take control of the House. So, that gives you a sense of the margin that OK, how much more do we go beyond actually just barely taking control of the House? Cook says about 10 to 20 seats that Republicans pick up. Again, if you, as you can imagine, from what I just said, I think it's actually gonna be quite a few more. I think 20 is probably the baseline and it's 20, 30 seats.

Why does that matter? It matters because Kevin McCarthy, who is the likely next speaker, or even if it's not McCarthy, if it's somebody else, um, if you have a very narrow margin of control of the chamber, it gives the, uh, th- the right wing, farther right wing of that caucus, the House Republican caucus, all the more power. And McCarthy's gonna have enough challenge trying to keep his caucus together, even if he has a substantial margin, uh, compared to especially, again, a very narrow margin. By the way, those narrow margins played a huge role in ousting the last two Republican speakers of the House. Uh, Paul Ryan and John Boehner both, again, had troubles unifying their caucus. So, th- that's my view on the House. Again, the real thing to watch there is how, how much control do Republicans have?

Moving to the Senate, again, I think that there are tossups. If you just go race by race by race, and this could... We could have a much longer conversation. But when it comes down to it, pretty much widespread agreement that there are four seats to, to, th- that hold the balance of power, uh, you know, that will d- dictate the balance of power. I think everybody knows right now it's 50/50, Democrats and Republicans, but with Kamala Harris as vice president, she casts the 51st tie-breaking vote. Um, the four, four seats are Georgia, uh, Nevada, Pennsylvania and Wisconsin.

Now there's some others. You could talk about Arizona or Ohio, but I think those four are the consensus pick. Um, and each of them really is a jump ball...

...that they know which direction any of those races is gonna go, or the overall Senate control is gonna go, I just don't see it and I don't think that person is being honest. So, Matt, wh- why don't I go... What do you think about what I said before then you talk about implications for investors?

Matt Miller: Sure. Thank you, Clarke, and, uh, again, uh, great to be with everyone. And, and I wanna underscore the reminder that Clarke offered that this is all analysis, not advocacy, in the way we, uh, lay this out. Uh, but my role on the investment team is to make sure, uh, that, uh, folks have a clear-eyed understanding of what we think is likely to happen and then, uh, think about, uh, what that means in terms of, uh, implications for how we steward the life savings of, uh, of, uh, so many Americans, uh, and mutual, uh, clients.

So, I guess in terms... I, I share Clarke's view. I think the House is gone. It's an interesting question, uh, you know, for Democrats. It's an interesting question why, um, the media, uh, tends to cover it as if, uh, there's, uh, certified Democrats and maybe that means it's gonna be closer than we think.

My own analysis is that that, partly, that's wishful thinking, partly it's a desire for a, a turn in the horse race narrative that happens, uh, near the end of these races. But I think even thoughtful media observers behind the scenes think that it's a very, very, uh, long odds for the Democrats to the hold the House because, as Clarke said, given the usual midterm reversals you have, given Biden's low approval ratings, the, the general frustration with inflation, uh, and, uh, and, uh, many other top-of-mind issues, uh, it makes it very hard to see how, uh, Democrats hold the house. And I agree that it, it, that it's a tossup.

Um, so, what does it mean? I mean, when I t- when I talk to investment colleagues, first, th- the House is all that matters. The Senate has lots of interesting Senate races, uh, and it will matter as Senate control for appointments and for judge confirmations, et cetera. But for investors, the House flipping is really the thing to focus on because that will, uh, assuming it happens as both Clarke and I think, it will end the affirmative legislative phase of Biden's presidency. So,uh, no more tax increases, uh, that can be discussed. No more of the more ambitious, as some would say, from the progressive side agenda, uh, that, uh, was frustrated, uh, by centrist Democrats in the Senate and the end game that we all saw in, uh, in recent months.

Uh, and the, uh, you know, the, the related question is then, with the GOP House, assuming that's correct, what does it look like, uh, for the next two years? And I think the short answer is it's mostly positioning, uh, for the 2024 presidential race. That's gonna be a lot of what dominates the behavior we see, uh, by House Republicans and, uh, them being pushed back against by House Democrats, and then, uh, how that plays out in the news, uh, in the, uh, in the, kind of, uh, climate of opinion that we all see.

But I would expect huge numbers of investigations launched by House Republicans once they have the gavel and the authority to do that. We'll see investigations of Hunter Biden. Uh, we'll see investigations of the, uh, arguably, messy withdrawal from Afghanistan under Joe Biden. We'll see investigations of, uh, arguable, uh, fraud in the COVID relief packages, the, you know, many, many, uh, hundreds of billions of dollars that went out and concerns about where some of that was spent. We'll see investigations related to the border that...

Republicans believe is, uh, being mismanaged by Biden. We may see, uh, investigations related to ESG issues and, uh, Clarke may weigh, weigh in on that at some point in terms of that debate. Of tech censorship. Uh, even of the way the Fed is handling inflation. Uh, and others that, um, uh, you know, may still be named. There's talk among House Republicans, at least some of them, about impeaching Joe Biden.

Um, you know, query whether this means that we are getting into this tit-for-tat impeachment back and forth. That's another marker of some of the erosion of, uh, civil discourse in U.S. democracy, but it's something investors have to be, uh, prepared for. It's unclear whether that's actually gonna happen. But even the debate over that, uh, could create some media fireworks, of course with a, with a very close Senate one way or another, Joe Biden will not be impeached and convicted and removed from office. But there could be a lot of noise around that if, uh, uh, at least if there's an effort among the Republicans, uh, to pursue that. I think there will be a return of the budget and debt ceiling showdowns that we've seen, you know, of, in, in ... in the last decade, when we had divided government, because that becomes a leverage point, uh, for both parties to try and push their agenda. And that creates, uh, again, a lot of noise in the media, and a lot of, uh, cliffhangers and drama, uh, that has potential to rattle markets. I do think there may be room for some modest common ground. Uh, even amidst all this conflict and noise as the ground is laid for 2024.

One hypothesis I have is that defense spending is sure to rise. Uh, because both parties will, um, have an interest in that. Again, both substantively and politically. Um, Republicans will wanna be kind of outpacing Democrats on the kind of defense spending they propose. But both sides feel that we're in a more dangerous world as you look at Russia-Ukraine. You look at China and the, uh, U.S.-China, uh, eroding relationship. Concerns about whether the U.S. needs to bolster capabilities seriously. And Asia, related to any potential, uh, uh, move by the Chinese government to reintegrate Taiwan. So, I think we're definitely gonna see more defense spending.

Uh, I also think there's gonna be a competition to the quote-unquote "tougher on China," as we head toward 2024. And that may lead to a, um ... the political incentives aligning for both sides to push a n-, kind of new, uh, set of measures on export controls and restrictions toward China. Maybe restrictions of outbound investment, uh, toward China. To China, some of that the Biden administration is already moving on, and may try and get done, uh, eh, on its own administratively before the midterms. But I would expect more activity in that terrain, uh, and potential agreement between the parties because it's something they can agree on.

Um, I do think, uh, and I, I think this view is a bit non-consensus when I compare what other observers, uh, in the, you know, in the political world are saying. Because I think that a GOP House is going to put brakes in the kind of, uh, uh, instant, full-throated, financial and arms support for Ukraine. Uh, we've had ... We've been in a pattern now where, uh, Biden and the administration were able to put through $20 billion, $30 billion, $40 million ever few mon-, every few months, uh, to Ukraine. And even while Republicans, many Republicans also are, uh, anti-Putin and support the effort to, uh, push back against Putin's invasion, I think we're likely to see a piece of the Republican caucus be much more focused on conditioning this level of U.S. aid to what Europe, uh, is doing as well.

And as you know, following the news, apart from the United Kingdom, and apart from, uh, Poland, uh, many of the nations, or the frontline nations that are right on Russia's border, uh, France and Germany for example, the biggest, uh, economies, uh, in Europe, uh, had been quite arguably, uh, meager in their financial support for Ukraine. And I can see Republicans trying to condition it. What's the implication of that? If there are now some speed bumps that emerge in the way that Ukraine is being supported, if it slows down somewhat and there's more debate in the U.S. on the nature and level of that support, at the same time that, uh, we see Europe go through what's likely to be a horrific winter, uh, with the various, uh, energy price spikes, even as governments are trying to insulate everyday people from these kind of crippling, uh, price spikes, especially for middle- and low-income, uh, families, we could see rationing. We could see, uh, plants being shut down and, and businesses having to uh, uh, bear some kind of rationing so that, uh, energy is kept flowing to homes.

I think we don't have a full picture yet of the kind of, uh, uh, well, the chaos that can emerge in Europe as we go into a cold winter with the energy crisis that they are going to be facing. And I do have a question as to whether those pressures, as well as, uh, there's some speed bumps in the U.S. support will create some pressures on Ukraine, uh, to, uh, be approaching some kind of a, a bitter settlement. Uh, or what Tom Friedman, the New York Times columnist, has called a, a quote-unquote "dirty deal" with Putin sometime sooner rather than later as we watch, uh, the months ahead.

Just one other thing I'd mention Clarke, is that it's, uh ... If the GOP does win both houses, because there is still a chance, uh, that they inch out a, uh, a victory in the Senate. I think we'd see the same kind of stuff, except we, it's now, it, if ... if they have uh, more than ... if they have a 50/50 ... or sorry, a, a 51-vote majority in the Senate, the Republicans, then they may try through this so-called reconciliation process where you can pass things with 51 votes, to do things that, you know, you might characterize as quote-unquote "messaging legislation" to define con-, to find contrast with Democrats going into '24.

But they could pass big tax cuts. They could pass uh, uh more stuff that seems quote-unquote, "tough on China." It's tough on the border and immigration if they can shoehorn it into this arcane, uh, budget process to try and draw battle lines with, uh, with, uh, with Biden and the Democrats going into 2024. And Biden might veto those things. And so, it, it, it points out a certain contrast.

But I do wonder, and again, this is just early kind of, uh, hypotheses, that there could be, you know ... If, if the Republicans pass some big tax cut, and they focus it on the middle class, uh, you know, query: Can Biden veto that and go into 2024 without supporting some kind of tax relief for, uh, middle-class Americans in a moment when inflation remains high, et cetera? Is there some compromise deal that both sides feel some incentive, uh, to, uh, because President Biden, the Democrats can't be as seen opposing that? It's just something I would say to, uh, keep an eye on. Why didn't I leave it there, uh, Clarke, in terms of, uh, some early thoughts.

Clarke Camper: Great. Yeah, thanks. And I think that, uh, jumping off from the kind of, uh, uh, sort of stasis, uh, or almost trench warfare that, that Matt just described. You know, if nothing is happening in Congress. What does it mean on a ... stepping back from a macro level? What it means is, obviously the Biden administration remains in '23 and '24, for those calendar years.

Matt Miller: OK.

Clarke Camper: So, let's say again, whether Republicans hold one or both houses of Congress, you're going to have this, this blockage. And so, what does it mean? Well, it means the Biden administration is gonna pursue its aims through regulation. Been doing that to, to a large degree the last couple years with I personally think not as much success as we might have expected. But again, what does is mean at the macro level? Well, it means that's gonna be the place to watch in terms of policymaking.

And, one of the important unanswered questions is, uh, how much courts will give latitude to the administration in terms of regulatory decision making. Why is that the case? Well, you may know that this last term, the Supreme Court, uh, had a decision that related to the EPA. Um, but it had impact potentially far beyond the EPA. And what it did was it changed something that was called “Chevron deference,” which was just a particular ... It was a case involving Chevron many years ago. The court said, essentially, if a decision by an, a, a regulatory agency is not arbitrary and capricious ... now, you know, query what that means. But anyway (laughs), if it's not arbitrary and capricious, you would defer to the regulatory agency and assume that they made ... you know, they have the authority and, and make the right decision.

What happened this last term with the Supreme Court was they tossed that out to, to some degree, and the open question is, how much? But they specifically said in their EPA case it was just that if, if there's a major question ... it's called the major questions doctrine. And the idea was that you have a major, sort of, issue that would have huge political or economic implications. In that case, the court said the regulatory agency had to actually point to statutory language to support their activity. And what they said specifically with the EPA was that some of their wastewater, uh, regulations were not specifically authorized in statute and so couldn't stand.

We're already seeing it, particularly at the SEC, in our world, the financial services world, challengers that are saying, "Hey SEC, you don't have authority to do things like, uh, climate regulations because it's not specifically authorized in your, your, uh, uh, statutory, uh, authorizing language." So, that again, watch that space, but we're gonna see more emphasis on regulation. It's just, we don't know, um, how much of that is going to stand.

Um, while I'm mentioning ESG, I want to do, uh, to say one thing that you probably have noticed if you're even, uh, sort of, monitoring some of the headlines in our, our space. Uh, ESG is obviously a huge issue, it's particularly, uh, been a big issue for Republicans. Want to again make clear, not making a political, uh, statement. An analytical one. But Republicans are, are driving hard and it's based on a lot of research on this idea that the corporate America has gone “woke.” And in particular, some asset managers, particularly the large asset managers with, uh, index funds or passive products are somehow using their leverage with companies. You know, with, with their ownership stakes to urge or force companies into making kinda of, you know, “woke” or green decisions.

So, I won't get into the merits of that because there's ... You could have obviously a very robust discussion about that. But it's, it's something that you've seen move to the fore in the Republican, uh, uh, re-election or election prospects I should say. It was something that I and, and a number of Republican colleagues early on, when we first saw this emerging early in the year, this idea of woke capitalism, we were like, "Really? Like, is that actually gonna fly? You know, like my parents in Oregon, or my colleague's parents who sits right next to me, or her parents in Ohio, like, they don't know what ‘woke’ is."

Well, it, it does seem like they have done a very good job of kind of pushing “wokeism” into the headlines. Governor DeSantis in Florida is a, is an example of that. Governor Abbott in Texas as well. And so, I think they really have made it into a political issue. We will continue to hear that, but that kind of drumbeat, um, you know ... It's unclear, as Matt was saying, it's unclear what Republicans could accomplish even if they, uh, uh, control both houses of Congress. Because you've got Biden sitting there ready to veto anything that was viewed as sort of anti-environmental or anti-green. So, um, with that Matt, how about if I kick it to you to talk a little bit about the road to 2024, what are, what, what should we expect along the way?

Matt Miller: Sure. And just to add one note, brief thought to your, your, uh, excellent comments on the ESG thing. Just, folks may be aware, but if you're not, in addition to some of the names, uh, uh, Clarke mentioned, other people who we may see run in 2024. Uh, Mike Pence, former vice president, uh, had a big op ed in the Wall Street Journal just, uh, t- totally pivoting off and packaging this woke capitalism, and ESG as a, a kind of a threat that Republicans, uh, try to be guardians of the economy. An investor, uh, you know, prudent investor standards needed to take on. Mike Pompeo, uh, the same thing.

And it's very clear that the Wall Street Journal editorial page is very focused on this theme. Obviously, a very powerful page in the whole, uh, political opinion ecosystem, and the fact that they are showcasing, uh, all the voices on the Republican side that wanna raise this issue really assures that it's gonna remain front and center in the political debate in the, in the next few years.

You know, I guess the question, you know the 2024 presidential race obviously starts the day after the midterms when we see the dust clear on the, uh, on the results. And, you know, I, I think we're heading to something that could be, uh, very wide open. Yeah, this is all speculation right now, um, because, uh, the future is unknown. But my own strong hypothesis is that, that Joe Biden will not be the Democratic nominee in 2024.

I think the question is, um... A big question would be does he, does he want to run? Um, and is there therefore a, uh, you know, some kind of internal party dynamic that has to take place for others to challenge him, or does he choose, with his family, which, uh, he said, he will be consulting after the midterms, and I assume sometime early next year, will he withdraw?

Um, you know, there are those who would say that his family may be trying to persuade him that he will have been a, you know, done an enormous national service by being in for one term. Accomplished, uh, as much as any president could have been expected to with such slender majorities. Bipartisan Infrastructure Bill, the CHIPS Act, a lot of money into semiconductors, the kind of COVID relief that, um...

Even though there are critics who would say it was a, a piece of what, uh, gave rise to the inflation picture we see still see today, still, that provided enormous relief to folks at a time of great uncertainty. Um, and that he provided a certain sense of stability after a tumultuous, uh, uh, four years before.

Um, but if he, if he does not... He has always described himself as a transition figure before the new generation of Democratic-side leadership. If he withdraws, that's one thing, and you'll have a very open field, obviously.

Um, I do not think, um, people ask will uh, will Kamala Harris naturally inherit, uh, the nomination. And I think the answer is, "No." I think that the view among Democratic party elites is that her performance in office to date... Again, whatever you think, whether that's fair or unfair, it has not inspired confidence that she can lead the party into the next election in a way that would, uh, pass muster, without there being a fight for the nomination by other rivals. We can talk about who they may be.

If, uh, Biden does not, however, uh, kind of, uh, decide to step back... Uh, I still think he will face challenges. And the question is how does that unfold? It's hard to know. Uh, it's hard to be sure. But Clarke... And I forget if we've talked about this in detail, but the, you know, one, one, one scenario I've thought about is akin to when Nixon was at the end. And there were several, uh, Republican senators he respected who kind of came down Pennsylvania Avenue to have a tough conversation with him once the final court decisions that, you know, uh, im- imperiled the Nixon presidency had been decided, and he resigned shortly thereafter.

Are there a handful of senators who Biden was close to for decades who, they themselves may not seek, are not seeking the presidency, and so, it's not that, that dynamic who would, you know, go down and try and urge to, uh, uh step aside for the party and, and, and allow for a, uh, transition to a, a new generation.

We'll, we'll see how that unfolds. It'll be, uh, it'll be a moving target in the months after the, uh, the midterms. I think Biden himself will say, "Look, uh, I'm the only person who's beat Donald Trump, and there's a chance that Trump is, uh, the nominee next time, and you need a figure like me."

But remember, Biden turns 80 several weeks after the midterms. Uh, it'd be an extraordinary for, uh, uh, any 80-year- old, uh, uh, incumbent to ask voters for four more years under those circumstances. That'd be total unprecedented.

Um, and so, uh, anyway, we'll see. But I... Then I would look for, you know... If I'm right that somehow, uh, there's gonna be a open contest for the Democratic nomination... Gavin Newsom from California wants to run. I think we'll see people like, uh, like, uh, Gina Raimondo, potentially who, uh, is, a, a, a, talented former governor of, uh, of, uh, of, of Rhode Island, who is now the Commerce secretary.

Uh, number of senators, a number of other governors. Gretchen Whit- Whitmer from Michigan, uh, Roy Cooper people talk about from North Carolina. So, we could end up with quite a wide open field.

And on the Republican side, I guess I expect, uh... And probably just to be brief, because I know we have, wanna make sure there's time for Q&A. The... Uh, I do expect Trump will announce, sometime maybe between the midterms and Thanksgiving or early after the midterms. Uh, I would not assume that he, uh, just because he announces that he will be the nominee, and that it won't, he won't face a tight fight.

So, uh, I know that clients across the states, and especially in Europe, where I've been lately, uh, are, you know, very interested in, you know, is it, is it a sure thing that Trump is coming back? I think the answer is no. Um, but I do think he'll run. Uh, my own judgment is that he is a diminishing asset.

Uh, the biggest, the, the biggest evidence for that, I find, is, um, when polls asked Republican voters at the beginning of the Biden administration, do you co- do you consider yourself more of a Trump person or Trump voter, or a Republican, a Republican voter? And it was 60/40 on the Trump person was the response from Republican voters.

Now it's basically flipped. Uh, and I think that the presence of talented rivals, people like Ron DeSantis in Florida, who's obviously much talked about. The fact that the January 6th hearings, uh, which in my view have taken a, a bite out of Trump, the more that gets revealed, uh, in a very media-savvy way that those hearings have done.

Uh, and that kind of seeps into the consciousness of the electorate in ways that, combined with the polling, make me think that there are a lot of Republicans who really like Trump, uh, really believe that he did a good job, but also think that he has baggage now that means he, he's not the right, uh, figure to take the party forward.

And they're looking for someone who, and they're open to someone, who has some of the policy focus, uh, and even (indistinct) that Trump had, but without some of the downsides. I think the thing that would flip that would be if, if Democrats make what I would suggest is a big political mistake of indicting Trump.

Uh, the more they pursue, uh, legal action against Trump, the raid on Mar-a-Lago, the various legal actions going on, the more I think that helps Donald Trump politically. Because it leads, uh, his folks to rally around their man under siege. We'll see how that plays out.

But, uh, I do think Trump will run, but it's not a given that he will, uh, be the nominee. And we'll see other folks, uh, that I've mentioned. Pompeo, uh, Pence, maybe Nikki Haley, others. Chris Christie.

Uh, it'll be a more formidable, and I think smaller, field than Trump faced than he originally did in 2016, which will make the debate dynamic, uh, more contested and less playing to Trump's strengths as a, uh, very effective TV character on a 17-person stage. I think it'll be a much smaller stage this time round. Why don't I leave it there, Clarke, in terms of, uh, exhausting that for now?

Clarke Camper: Sure. Yeah, how about if I, uh, jump in a little bit? So, first, I agree with you on, uh, Joe Biden. I think it's unlikely... He's very unlikely to be 2024 Democratic nominee. I think that's news to him. Um, I think he very much expects to run, wants to run. I agree with Matt that, yes, family's gonna have a huge role in that. But he, he does, he does keep coming back to, "I'm the only one who can beat Trump."

Um, and the people around him, as you may have noticed... One thing that has surprised me is that he has not, um, fired anybody (laughs), to put it bluntly. With all these, Matt mentioned, some of these, you know, bumps, to put it, uh, sort of kindly, along the way of the first two years of this administration, he has still kept the same small cadre of people who have been with him for many years. They all are team Joe, are saying, "Go, go, go."

The reason I think he gets out is donors. I think after the midterms, uh, donors... You know, the money starts to dry up, and to me, those people are probably gonna be more influential, as you say, Matt. Absolutely, Biden is the big relationship guy. He has tons of relationships all over town and on the Hill. I think that, that, that, uh, though, that they will not... Those kind of policymakers won't be as influential as, as that.

On the Republic side, yeah, it's interesting. I think it's Trump's. I think it's Trump's to lose. Um, you know, barring something cataclysmic, I think, uh... I do think that, uh, Merrick Garland ends up indicting Trump. As Matt said, I agree 100% that only underscores, uh, his, you know, the devotion, and frankly fills his brand. Not to be crass, but that's, that's the case. So, I personally think that's, that, that it's his.

Um, obviously there's a lot of, of, of good conversation, and a lot of, a lot of support around Ron DeSantis in Florida. My view there is he... Um, if you have a chance to do it... And first, I wanna be clear, I am not making a political comment (laughs), I'm just...

As someone who's watched this for decades, um, what strikes me is he, uh, doesn't have a very compelling presence. I mean, as we know, Biden doesn't have the strongest presence either, and that's one of the things I think has, has really hurt him compared to Trump, who, you know, you, you cannot help but, but look.

Um, DeSantis, if you hear him talk, doesn't have a lot of charisma, voice is a little screechy. And I wanna be clear. I, I hate that stuff, right? But, but the fact is, it matters in politics. And so, that's why I think that, uh, I, I would... You know, I feel like DeSantis has not yet been tested.

Um, last thing I'd say is this, this, uh... I agree on the Democratic side. But like, who knows how it plays out? I remember very well before 2020... I guess it was 2019, at this point. When, you may recall, but everyone assumed that Elizabeth Warren was gonna be nominee, uh, Democratic nominee. And that was, I think, as late as maybe December of 2019.

And what I was saying then was, if you just go back and look who was gonna be the nominee, you know, at that same point in the, in sort of the, the, the race, you know, Ru- Rudy Guiliani was along there. You had a couple generals along the way on the Democratic side who, you know, back in December just, you know, 10, 11 months out, they were in the poll position. So, again, I think that, you know, it is very hard, I think, on the Democratic side to figure out, uh, who might actually be the nominee.

Um, you know, Matt, if I might mention one thing. I go- got a question about stocks and how they do in terms of the makeup of Congress. Um, and in fact, it's... I, I have a, a slide that I pulled up here in my other screen next to me, but it was some research that a Capital Group had done in terms of, uh, the S&P 500 Index average annual return from 1933 to 2021. So, again, S&P, average returns, 1933 to 2021, when you had unified government... so, you know, one party controls the White House and both chambers of Congress, 10.4% return. When you had a split Congress. So, you know, one member owned, or, one party owned (laughs) controls one, uh, one chamber and the other party controls the other. Split Congress, 10.8%.

So, again, that compares to 10.4% for unified governmental control. And then finally when you add unified Congress, you know, as we have now, like, Democrats controlling all bodies, or Republicans controlling all bodies, average return was 7.4%.

So, it's obviously done relatively well, is the nice thing. But it's interesting that I think that scenarios that we describe where it's likely a split Congress performs actually the best of all the, the configurations of Congress.

Matt Miller: It's, uh, those are interesting uh, uh, uh, uh, uh, facts that, uh, our team has assembled and hopefully we've, uh, we've shared. And I think the, you know, the main message, which is uh, kind of the classic Capital Group's American Funds theme is that, uh, it pays to be invested over the long term under any scenario, um, because, uh, even if there's some ebbs and flows that the, uh, the, the markets have, uh, generally risen over time, and you wanna be invested so you're not trying to time the market based on political, uh, political, uh, implications at all.

I know that there's another chart that we might have had in the pack, or that we, uh, distributed that shows, uh, that there's often uh, the year after midterms is especially good, uh, compared to other years, and one, one I guess, uh, point I'd raise in that regard, and I'm not a portfolio manager, but I spend time in meetings all day with colleagues, and one, one thing they point out in that regard is to maybe be wary of the expectation that the year after this midterm in this particular circumstance that we base economically and geopolitically is the year of outperformance compared to other years.

I know our economists from the U.S., and Europe, and China are, are all looking at potential recession scenarios, and that means that hit on earnings, uh, that we would expect that would have some impact uh, obviously on, on asset values and between the geopolitical tensions that we see now with the obviously very serious situation uh, with Russia and Ukraine. Uh, a lot of stuff, uh, boiling with, uh, U.S.-China relations. Uh, I think the mix of, of economic challenges as well as the geo- this geopolitical layover, uh, means that, one would be wise not to assume the year after the midterm is some year about performance.

Even though that's been the record, uh, you know, over recent decades. So, it's worth having that kind of approach.

Clarke Camper: Great, thanks, um, in, mindful of time we have about 90 seconds left, but, how about this, two questions have come in. One was about the, uh, debt ceiling, and then, Matt, how about if I do that, and then I'll kick to you. Someone else asked to say a little bit more about restrictions on investment in China, like is that really a thing? Um, the, uh, in terms of debt ceiling, something to watch is, the expectation is that Congress will have to lift the debt ceiling sometime in the fall of 2023.

I know Mitch McConnell has already spoken with Kevin McCarthy about how they would get this done. Um, because it... clearly, they are concerned politically. This is the kind of scenario where if it's not... if the ceiling isn't raised, it's sort of like a credit limit on, you know, your line of credit. Um, then the government shuts down. We've seen that in the past. Um, the challenge will be at... going back to my first comments at the top in the, the session, in terms of how much can, can McCarthy get his caucus to go along and approve an increase in the credit limit, so to speak, so.

Uh, watch that space, but that absolutely could be an issue for investors. Matt, China, so is this idea of restricting inbound investments really a thing?

Matt Miller: Uh, it's restricting uh, i- investments from U.S. entities into China.

Clarke Camper: Yes, that's right. Into, right, into China.

Matt Miller: Yes, I- I think it's, you know, it's part of the, um, the whole theme that's, that's... both parties are approaching now of quote-unquote "getting tough on China." Then the arguably, uh, you know, deep concerns across the U.S., uh, political class on both sides, uh, uh, about the Chinese government's intentions and rise. I think there’ll be especially serious scrutiny that is growing of investments that can be characterized as in any way enabling, uh, uh, Chinese Communist Party military, uh, development. Chinese Communist Party, uh, potentially, uh, surveillance, uh, not just within China, but the kind of, uh, chip and equipment they're providing across other regions of the world.

Uh, the Chinese Communist Party is very active now in places like Africa for example and developing infrastructure and is part of that. Uh, are bringing capabilities to bear that has to do with surveillance of domestic populations that, uh, that the U.S. government was increasingly likely to frown on, so, I think I would look for, um, uh, a different, both a debate, and then new restrictions coming in the period ahead on outbound investments that can be characterized as related to those goals of helping, uh, the Chinese government regime, uh, in, in activities that are deemed, uh, against U.S. national security, I guess.

Clarke Camper: Great. Well with that, uh, thank you very much for, uh, spending your time with us.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. 

Investing outside the United States involves risks, such as currency fluctuations, periods of illiquidity and price volatility, as more fully described in the prospectus. These risks may be heightened in connection with investments in developing countries. Small-company stocks entail additional risks, and they can fluctuate in price more than larger company stocks. 

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.

S&P 500 Index is a market capitalization-weighted index based on the results of approximately 500 widely held common stocks. This index is unmanaged, and its results include reinvested dividends and/or distributions but do not reflect the effect of sales charges, commissions, account fees, expenses or U.S. federal income taxes.

The market indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index. Past results are not predictive of results in future periods.

All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

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@ 2022 Capital Group. All rights reserved.



Matt Miller is a political economist at Capital Group. He has 37 years of industry experience and has been with Capital for eight years (as of 12/31/22). He holds a law degree from Columbia and a bachelor's from Brown University.

Clarke Camper is executive vice president, government relations, at Capital Group. He has 33 years of experience and has been with CG for seven years (as of 12/31/2021). He holds a juris doctor from Harvard Law School, a master’s degree in public policy from the Harvard Kennedy School, and a bachelor’s degree in public policy from Stanford University. 

Past results are not predictive of results in future periods.


S&P 500 Index is a market-capitalization-weighted index based on the results of 500 widely held common stocks. The unmanaged S&P 500 Index is a broad measure of the U.S. stock market.

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This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.