Trump inches ahead in tight White House race, GOP takes senate

Former President Donald Trump appeared close to re-taking the White House late Tuesday and Republicans won a majority in the Senate while the House remained too close to call.

Republicans late Tuesday appeared to take control of the Senate after flipping three seats, according to the AP. In the House, Democrats had flipped one seat, in New York, as of late Tuesday, and needed three more to take the chamber. As of late Tuesday more than 100 races had yet to be called.

Who controls Congress, and by how much, remains almost as important to the municipal bond market as who wins the White House. A sweep by either party is considered to carry higher risks for the municipal bond market than a divided government. The margins of control of the House and Senate will help determine the size and scope of potential tax law changes that will affect demand for tax-exempt paper and the threat to the tax exemption itself as lawmakers take up a tax debate over expiring provisions of the Tax Cuts and Jobs Act. Trump has said he wants to make the law permanent.

Three-term Ohio incumbent Sen. Sherrod Brown, chair of the Senate Committee on Banking Housing and Urban Affairs, lost to Republican Bernie Moreno, a businessman and car salesman. 

If Republicans gain control of the Senate, the expectation is that Ranking Member and Trump loyalist, Tim Scott, R-S.C., would take over the banking committee chair. 

West Virginia Republican Gov. Jim Justice easily won the state’s open Senate race, taking the seat formerly held by Sen. Joe Manchin to Republicans. Montana incumbent Sen. Jon Tester, considered one of the most vulnerable Democrats, appeared late Tuesday to have lost his fight against businessman and former Navy SEAL Tim Sheehy.

Narrow control of either chamber would mean more clout for a group of bipartisan lawmakers from big-tax states like New York and California whose top priority is lifting or eliminating the $10,000 state and local tax deduction cap. The cap was put into place under Trump’s signature TCJA, but during the campaign he flipped his position and said he would support eliminating it.

Current Ways and Means Committee Chair Jason Smith, R-Mo.,has suggested the cap would remain in place but that it may be adjusted up from its current limit of $10,000 and the so-called marriage penalty would be eliminated.

If the Democrats re-take the House, Ranking Member Richard Neal, D-Mass., long considered a muni-bond champion, is expected to take over the chair. Neal held the position from 2019 to 2023.

Trump during the campaign floated proposals to lower the corporate tax rate to 15% for some companies, a policy that would, along with the move to keep individual tax rates relatively low, generally dampen demand for municipal bonds. His proposal to impose tariffs — which he could do without Congressional approval — could disrupt supply chains and thus infrastructure projects, according to some market participants.

The final outcome of the election may be overshadowed by the current makeup of the Federal Open Market Committee, according to a report by Hilltop Securities released Monday.

“Economic, market, and election volatility have significantly impacted decision-making since the Federal Reserve lowered its target rate by 50 basis points in September,” Hilltop said. “Contrary to our initial expectations of falling yields, these circumstances have presented what we believe to be the best opportunity of the year for municipal investors.”  

Investors should “brace themselves for potential continued volatility, as uncertainty is likely to persist. There is a possibility that the Fed may lower its target rate again, but it could also decide to pause,” the firm said.

Scott Sowers contributed to this report