U.S. voters delivered a divided Congress following contentious midterm elections that have swung the House of Representatives back to the Democrats for the first time since 2010 but extended Republican control of the Senate, potentially setting the table for two years of gridlock in Washington.
President Donald Trump hailed the "tremendous success" of his Republican colleagues on Twitter as the results rolled in, while re-sending messages that praised his influence in key races around the country, but the facts suggested America's political landscape was perhaps more polarized than ever before.
The legislative split looks set to define both the president's second term and his efforts for re-election in 2020, while simultaneously changing investor assumptions for some of his headline economic and foreign policy ambitions in the months ahead. It may also trigger a damaging partisan battle between congressional lawmakers if newly-elected House member decide to move forward with investigations into the President's myriad legal affairs.
Below is a brief list if issue that markets will need to digest in the coming months as they assess the impact of the newly-elected Congress and the final term of the extraordinary Trump Presidency.
Perhaps the first and most pressing issue for Democratic lawmakers on the House Ways and Means Committee will be a move to subpoena the president to release his tax returns, which he has so far refused to do. Issues related to alleged sexual harassment, obstruction of justice and violations of the emoluments clause of the Constitution could also be investigated by a Democratic-led Congress in the early months of the new term.
These probes would likely take a back seat to any allegations of Trump campaign ties to Russia during the 2016 presidential election, which are the subject of an ongoing investigation by Special Counsel Robert Mueller, which has thus far resulted in more than 30 indictments and guilty pleas. But Trump is vowing to fight back:
At the same time, a Congress that's bogged down in partisan fighting of the fate of a polarizing president will find it difficult to reach consensus on a range of other issues. Democrats will need to weigh their desire to hold the president to account with their need to deliver on key election pledges such as healthcare and immigration reform.
The president's protectionist tendencies, which have drawn the ire of trade partners around the world, are probably the one point on the economic compass that Democratic lawmakers can find common direction with their Republican rivals, particularly when it comes to reducing China's ever-increasing trade surplus.
A Democratic win is unlikely to halt or alter the President's efforts on trade, if for no other reason than the fact that he can apply tariffs without congressional approval.
However, the now lame-duck House may balk at supporting Trump's revamped NAFTA agreement with Canada and Mexico, while those two nations may be emboldened by the change in leadership to reject the new treaty on the basis that it continues to include tariffs on steel and aluminium imports.
Trump's critics point to the ever-expanding U.S. deficit, which is projected to rise past $1 trillion for the current financial year, as evidence that his economic record is tainted by increased borrowing and a weakening of the nation's finances. A Democratic-controlled House is unlikely to support his floated plans for middle-class tax cut, but lawmakers could support his long-delayed ambition to pass a $1.5 trillion infrastructure spending bill sometime next year.
A key sticking point in that debate, however, will be the issue of funding for a border wall between the U.S. and Mexico, a key Trump campaign pledge in 2016 that Democrats have vowed never to support.
A protracted fight over border wall financing, which could trigger Republican pushback for new spending initiatives elsewhere, may lead to a potential government shutdown as the debt ceiling suspension expires in March of next year.
California Democrat Maxine Waters looks set to take control of the powerful House Financial Services Committee next year following Tuesday night's win, replacing GOP rival and current chair Jeb Hensarling. Waters, an outspoken Trump critic, has promised to reverse some of the changes made to the Dodd-Frank Wall Street Reform and Consumer Protection Act last year, which many saw as titled towards the banking sector.
A Republican Senate, however, may act as a counterweight to House efforts to reinforce Dodd-Frank regulations, setting up yet another extended spat between rival lawmakers over a key component of the U.S. financial landscape.
While largely the purview of the president alongside his secretary of state, foreign policy will nonetheless be influenced by Democratic control of key House committees on foreign affairs, intelligence and defense.
How this change is leadership will alter State Department policy -- and more importantly, the president's tone in international affairs -- is difficult to predict. But some analysts have suggested the various world leaders, including North Korea's Kim Jong-un, Iran's Hassan Rouhani and China's Xi Jinping, will see the president's erosion of power as an opportunity to push back against some of his more bellicose demands, including tariffs and sanctions, as they wait to see if the midterm election results point to a change in the White House in two years' time.