A Strange Moment in Congress
The lame-duck session starts now, and the setup is odd. The old Congress is back in Washington to do real work. The newly elected members are also in town - for orientation, briefings, party leadership elections for next year, picking their offices, and learning the job they take over in January.
The top task for the old Congress is funding the government, which expires December 11th. Congress has until then to approve an extension or risk a shutdown. The most likely outcome is another short-term extension that pushes the issue to February, leaving it to the new Congress after it takes office in January.
Lame-duck dynamics are complex. Many members just lost elections or are retiring, so they have little will to work on issues. Republicans want to finish a lot before they lose their majority, but they are unlikely to achieve anything beyond possibly shutting down the government. Most of what they try will not get done.
Mixed Political Signals for the New Year
Democrats will hold a large majority in both the House and Senate, but they face immediate pressure to deliver on promises. Winning elections is easy; governing is hard. They will need results on affordability, housing, healthcare, and inflation. Their focus points include stopping funding for the war in Iran, and controlling data centers and the crypto market.
The President is sending mixed messages. He calls himself "Mr. Veto" but also says he looks forward to working with Democrats for the good of the country. His choice of Stephen Miller as White House chief of staff, effective today, is a clear signal he does not plan to cooperate - Miller is one of his most uncompromising and controversial advisors. Effective teamwork between the two sides looks unlikely.
Democrats also face a split within their own ranks: their base wants to investigate Trump administration officials and settle scores, while voters want real steps to lower the cost of living. The "honeymoon" period may be short, with pressure building from the start of January.
Good Data, Falling Market
The word "strange" fits much of what is happening now. Markets sold off last week even though the economic data was strong. A week earlier, GDP looked solid. Last week brought another strong productivity figure and an employment report that was strong by all standards. The market still fell.
The key is timing. All that data looks backward. It is the freshest information available, but it still reflects the past. The question now is what to focus on ahead. Earnings reports are the main focus right now, plus some things outside the current reporting period.
Data Centers and the Patience of Investors
The worry over data centers is a minor obstacle, not a full stop - more a limitation than a halt. On profits, the picture is this: on the Nasdaq, investors are now paying a quarter of a dollar less for earnings, because earnings growth has been too fast this year while the index itself is up only 7%.
The 2027 data center projects are already underway and in progress. Much of the current debate is about 2028 data centers, which may slip to 2029. Both things can be true at once: profits can be figured almost to the cent for what happens over the next 12 months, while expectations beyond that 13-month window still show up in the share price, because investors price in the long term. Both sides of the argument may be right. The sensible stance is a balanced read of the different risks, with clear awareness that the timeframe can vary a lot.
These views come from the team at Charles Schwab (SCHW) - Casey McCurdy of the Schwab Center for Financial Research, and Mike Townsend, Managing Director of Legislative and Regulatory Affairs.
