Right now, an important question is trending across Capitol Hill: who will be the next Speaker of the House? Last week, GOP leaders ousted California Republican Kevin McCarthy from the position in a historic turn of events. Since then, multiple candidates have been vying for the position. At a time when the congressional Republicans are unquestionably divided, the party has an opportunity to restore unity by appointing a new leader. Last night, the race took another turn when top candidate Steve Scalise (R-LA) dropped out, effectively passing the buck to the Speaker of the House Candidates. As of now, it is a race between staunch Donald Trump-ally Jim Jordan of Ohio and lesser-known Austin Scott of Georgia.
Both candidates are far-right Republicans who don’t look that different on paper. But as they gear up to square off in a campaign to lead the divided GOP, questions abound. Investors are likely wondering what to expect when the next Speaker of the House is sworn in. I decided to take a closer look at this important topic.
Speaker of the House Candidates: What to Expect
First and foremost, the House Speaker election likely won’t shake things up too much for investors in the near future. There’s no real reason it should. If the baton were being passed from one party to the other, it might be different. But Kevin McCarthy had a long record as a committed member of the Republican Party. The same can be said for both Jordan and Scott. The only scenario that might change that would be a more moderate Republican emerges to join the current pack of Speaker of the House candidates. As of now, that doesn’t seem likely.
However, there is one important risk for investors to note. The risk of a government shutdown in November is likely to increase with a new House Speaker. McCarthy surprised many people when he opted to partner with the Democratic Party last month to keep the government open. This decision ultimately cost him his position as House leader. If he is replaced with someone even more conservative, the threat of a shutdown could easily increase.
That puts the entire economy at risk. In January 2019, Donald Trump shut the government down over a lack of funding for his border wall. It would go down as the longest shutdown in U.S. history, but the damage to investors came in the weeks leading up to it. As Yahoo Finance reports of the median S&P 500 decline, “the largest decline of 19.8% came ahead of the government shutdown that lasted from Dec. 21, 2018, to Jan. 23, 2019.”
Other shutdowns haven’t been that bad, but that doesn’t mean a looming shutdown isn’t cause for concern. Markets hate uncertainty, and that is one thing that a government shutdown brings in spades.
What Comes Next
Republicans have proven that they are willing to shut down the government in order to move their agenda forward. We saw it under Trump, and we will likely see the same thing if Jordan, who has the former president’s full endorsement, is voted House Speaker. Scott doesn’t quite have Jordan’s national profile. But he’s entered the race because he clearly believes he is better suited for the position than his opponent. Both politicians are guided by highly conservative principles, which will increase the chances of a government shutdown in November.
As InvestorPlace contributor David Moadel notes, the ousting of McCarthy could easily lead to a congressional gridlock in the fairly near future. I’ve written that a divided government can sometimes benefit the market. But that doesn’t apply when a government shutdown threatens to severely curtail entire industries. Both Speaker of the House candidates present a troubling path forward, as neither is likely to take the necessary steps to avoid another shutdown.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
