US Sen Mitch McConnell RKY celebrates with his wife Elaine Chao at his election night event on Tuesday

U.S. Sen. Mitch McConnell (R-KY) celebrates with his wife Elaine Chao at his election night event on Tuesday.

“No Cosmic Meaning in Republican Victory"

Greg Valliere of the Potomac Research Group says the mid-term elections Tuesday will be a “great night” for Republicans, but they are making a mistake if they think the U.S. electorate is giving them a broad mandate.

“This is an election about Obama,” Valliere said to a group some 2,000 financial advisors gathered in Denver, kicking off Schwab’s annual Impact conference. “The Republicans cannot delude themselves into thinking tonight holds some cosmic meaning.”

“I can’t buy into the myth that this means the Republican Party is resurgent,” Valliere said. That said, he predicted the House of Representatives would stay under Republican majority for a “very long time,” given issues of redistricting.

“So the question Republicans have to ask themselves is what will they do with the victory?”

The party could follow one of two narratives, Valliere said. The Tea Party wing of the party, led by Ted Cruz, the junior senator from Texas, or the more “pragmatic” Republicans, like Mitch McConnell and John Boehner. Valliere thinks the moderate wing will win out.

“Now they have to prove they can govern,” he said. “They have a tough fight coming up in 2016,” when, he predicts, Hilary Clinton will run for the White House.

Valliere predicted Republicans would try “for the one millionth time” to kill Obamacare, “and they will fail.” What they may do, he suggested, was modify it, perhaps by eliminating the 2.3 percent tax levied on medical device manufacturers. “There are at least 25 Democrats who will go along with that, including Elizabeth Warren.” Warren, a Senate Democrat and strong Obamacare supporter, represents Massachusetts, where the medical device industry is a major part of the economy.

We can expect the gridlock to benefit the markets, Valliere said. In addition, he suspects corporate tax reform will become a priority. “That’s low-hanging fruit. There is near unanimity that the corporate tax structure needs reform.”

Valliere said that could be good for the economy as repatriations from corporate foreign tax havens come back to the U.S. “at low rates.”

“That’s a good story for mergers and acquisition activity, for dividends, for stock buybacks, maybe we’ll even see some workers hired,” he said.

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