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  • Writer's pictureStaff @ LT&C

BARRONS: What Kevin McCarthy and the House Speaker Turmoil Means for Markets

California Republican Kevin McCarthy lost another string of votes to become House speaker Thursday, as the drama on Capitol Hill extended through a third day and Wall Street strategists questioned what it means for markets.

“If the House deadlock continues for weeks—or longer—the markets may have to worry about fiscal policy uncertainty,” said Greg Valliere, chief U.S. policy strategist for AGF Investments.

The infighting in the GOP “is an ominous portent of how the debt-ceiling fight will go this summer,” Tobin Marcus, senior U.S. policy and politics strategist at Evercore ISI, said in a note on Thursday, MarketWatch reported. As of 7:20 p.m. Eastern time on Thursday, Congress had run through 11 ballots, and McCarthy failed each election attempt. His bid for the gavel was being held up by a group of 20 conservative lawmakers who seemed determined to vote for anyone but him, preventing McCarthy from getting the 218 votes needed to prevail. Former President Donald Trump even got a few votes on Thursday.

Chris Krueger, managing director of Cowen’s Washington Research Group, said three scenarios could play out: Rep. Steve Scalise (R., La.) could be nominated and elected speaker, or a unity leader could emerge who would appeal broadly. In a third scenario a temporary speaker could be put in place to get business started. Nothing can be done in the chamber until a speaker is seated. Newly elected House members can’t even be sworn in, and no legislation can move forward.

McCarthy has been negotiating with the holdouts to break the deadlock, but the concessions he is giving away may prove as troublesome as the GOP’s current lack of consensus, Krueger said.

“The juice is not worth the squeeze,” Krueger said in a note on Thursday. “Hard-liners will be in positions of influence on the all-powerful Rules Committee & occupy the commanding heights of subcommittee chairmanships on other key committees like Appropriations that can drive the House agenda into the ground.” The budget bill signed by President Joe Biden in late December, after it passed both chambers of Congress, funds the government through the end of its fiscal year in September, but turmoil among lawmakers in the House could hold up other efforts.

The debt ceiling could become an issue by July 2023, according to the Committee for a Responsible Federal Budget, a D.C. nonprofit. The federal government’s spending limit was last raised in December 2021 by $2.5 trillion to $31.381 trillion, and that is expected to last to July, the group said. After that there needs to be a new agreement by Congress to raise or suspend it.

The revolt by the conservatives even came despite Trump urging Republicans over his social media platform to back McCarthy.

Lauren Boebert (R., Colo.), one of the 20 holdouts, who referenced Trump as “my favorite president” during a speech on the floor of the House on Wednesday, said he “needs to tell Kevin McCarthy that, sir, you do not have the votes, and it’s time to withdraw.”

Cowen’s Krueger said in a note on Wednesday, “That Trump can no longer sway or influence his former core supporters is another data point that underscores how ungovernable this majority will be—whoever eventually gets the role of Speaker.”

PredictIt, a betting market, is giving McCarthy’s odds of becoming the next speaker at about 42% versus 35% for Rep. Steve Scalise of Louisiana.


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