By Haddon Libby

Control of all branches of government now resides with Republicans.  This means the Presidency, Senate and Congress while six of nine Supreme Court justices were nominated by Republican presidents.  The last time Democrats had full control was during the first two years of the Obama presidency.

This red sweep seemed nearly impossible just four years ago.  Just four years ago, political pundits were wondering if the Republican party would split into dueling factions.  It was thought that the Democratic party had demographics increasingly leaning in their favor.

This shows what talking heads know.

Republican control of all branches of government will result in sharply different approaches to economic growth and prosperity.

We are certain to see an increase in Merger & Acquisition (M&A) activity as the Biden era contested most attempts. In one case, the administration was successful at blocking the merger of Tapestry and Capri.  The argument was that this merger would give the combined company too much control of the luxury handbag market.

Wouldn’t government resources have been better used toward something of more significance to most Americans?

The business most likely to see a pickup in M&A activity are banks.  Regulation makes it nearly impossible for community banks and many regionals to compete.  With 7,500 banks in the United States, expect significant consolidation.

Another significant change will be a predisposition toward helping smaller US companies over the largest US companies and non-US companies. By supporting products and companies made domestically over those made offshore, it is expected that small businesses will be better able to compete against non-US and global companies.  This is likely to hike prices on consumers.

The deportation of those who crossed into the United States during the border crisis is expected to create more jobs for Americans.  Fewer workers means higher wages for people working in low wage jobs.

Where the Biden administration halted the development of Liquified Natural Gas (LNG) terminals for export while slow-walking small-form nuclear reactor applications, the Trump administration appears intent on growing all energy sources as quickly as possible.  McKinsey & Company estimates that energy demand from Generative AI, data centers and EVs, McKinsey & Co. will require the United States to grow its electricity supply at a 22.5% ANNUAL rate through 2030.  Without rapid electricity growth, costs on Americans will increase at an unacceptably high rate.

Roughly $50 billion will need to be invested to meet demand and keep prices down.  At present, 60% of new supply will be from gas with 40% from renewables. To be carbon neutral and produce the amount of energy needed, many believe that nuclear power produced through Small Modular Reactors will be needed. At present, Russia, China and Canada use this low-cost energy source.

The Red Sweep is likely to cause a sharp reduction in duplicitous government regulation and overlapping agencies.

We are likely to see the capital gains rate drop to 15%. There is also a serious discussion to eliminate taxes on social security benefits.

The Securities Exchange Commission is expected to regulate cryptocurrency in a favorable and supportive way.

Overall, the architects behind the economic policies of the Trump administration are hoping that their efforts will grow the US economy at a fast enough rate to cause federal debt to shrink as a percentage of Gross Domestic Product (GDP).  At present, US federal debt is 120% of GDP and growing.  In 2005, debt-to-GDP was 57%.

The biggest risk to these approaches relates to unintended outcomes from the use of tariffs in negotiations with other countries. If things work as expected, Europe and China are likely to feel the impact more than the US.

Republicans have the next two years to show voters that this approach to governing will work.  If not, Washington will lose its deeply red hue and turn purple in 2026 before turning blue in 2028.

Haddon Libby is the Founder and Chief Investment Officer for Winslow Draken Investment Management, a Fiduciary RIA.  For more information on our services, please visit www.WinslowDrake.com.