The Next Speaker of The House and Markets

The House made history by voting to oust Kevin McCarthy, marking the first instance in U.S. history where a speaker was removed through a vote. This surprising turn of events triggered a frantic search for a new Speaker of the House. This search finally concluded with Mike Johnson securing the necessary votes. But the process and multiple failed votes to select a new speaker does not inspire confidence in the legislative arm while the U.S. is involved in multiple conflicts abroad and stares down a potential government shutdown. The geopolitical and domestic political backdrop provides no sense of security for already volatile markets.

The Speaker of the House has a significant role in Congress, as they act as the mouthpiece for the House majority, and also have significant duties that impact the day-to-day activities of the House of Representatives. The key duties of the Speaker are as follows:

Presiding Officer of the House of Representatives
As the presiding officer, the Speaker is responsible for maintaining order during House sessions. They recognize members who wish to speak, ensure that debates and votes follow established rules, and manage the flow of legislative proceedings. The Speaker's role is critical in ensuring the House functions smoothly and efficiently.

Setting Legislative Agenda
The Speaker plays a central role in determining which bills and issues are considered by the House. They work with party leadership and members to prioritize legislative initiatives, decide when bills will be brought to the floor for debate and voting, and can strategically advance the party's legislative goals.

Committee Assignments
The Speaker oversees the day-to-day operations of the House of Representatives. They work with House leadership and administrative staff to ensure the efficient functioning of the House. This includes managing the House's budget, personnel, and resources, as well as addressing logistical and procedural issues.

Oversees House Operations
The Speaker oversees the day-to-day operations of the House of Representatives. They work with House leadership and administrative staff to ensure the efficient functioning of the House. This includes managing the House's budget, personnel, and resources, as well as addressing logistical and procedural issues.

Source: Here’s what the speaker of the House actually does | PBS NewsHour; What does the US Speaker of the House do? - BBC News

On October 3rd, the House voted 215 to 210 to remove Kevin McCarthy. This is the first time in U.S. history that the Speaker has been ousted through a vote, although there have been instances of Speakers stepping down after losing support of their party. A small group of Republicans led by Matt Gaetz joined 208 Democrats to successfully vote out McCarthy. The House Republicans were then forced to scramble to find a new potential speaker to unite the party in the House. Their first attempt was Congressman Jim Jordan from Ohio.

Jim Jordan was put forward as the first candidate to be the next Speaker of the House. Jordan had support of the group of Representatives that joined Democrats voting for the removal of Kevin McCarthy, but he was not able to garner the support of more moderate Republicans specifically, some of the Republicans that represent districts that Biden won over Trump in the 2020 general election. After the first unsuccessful vote, Jordan reportedly started working to recruiting more votes, but after two more unsuccessful votes, he retreated and collectively, Republicans started to consider what the path forward might look like.

Following a closed-door meeting, Rep. Mike Emmer from Minnesota was selected as the next candidate. Emmer a more moderate Republican, voted to certify the results of the 2020 election in favor of Joe Biden and voted in favor of a bill that provided federal recognition of same-sex marriage, two votes that were departures from most of his fellow Republicans. Shortly after announcing his nomination, more than 20 Republicans and former President Trump came out saying they would not support him. Trump took to truth social to call him a “RINO” – republican in name only – who “never respected the power of a Trump endorsement.” After the open signs on non-support, only hours after being nominated, Emmer dropped out of the race to become the next Speaker of the House.

Source: House GOP scrambles to find path forward after voting to push out Jordan as speaker nominee | CNN Politics; Tom Emmer drops out of race for Speaker of the House - BBC News

After more than 3 weeks following McCarthy being removed as speaker, Mike Johnson, a representative from Louisiana, united Republicans and secured the Speakership. Johnson is in stark contrast to the previous nominee Mike Emmer. Johnson voted to overturn the 2020 election and is a religious conservative opposed to same-sex marriage.

In his opening remarks, Johnson affirmed the House’s commitment to send aid to Israel, as well as mentioning some other key Republican issues like reigning in federal spending and working to secure the southern border. Johnson’s efficacy as speaker will be under a microscope as legislators stare down a November deadline to fund the government and avoid a shutdown.

Source: House Elects Mike Johnson as Speaker, Ending Three Weeks of Chaos - The New York Times (nytimes.com)

While political events and markets sometimes do not seem to listen to each other, it is reasonable to think that the highly public and messy process of selecting a new speaker, will introduce marginal uncertainty into the market if there is any need for a legislative or policy response to a market event. Already as it relates to the conflicts in the Middle East and Ukraine, there has been a delay in voting on the defense proposal that President Biden has sent to Congress.

Any time there is this level of uncertainty in markets and geopolitics, it is worth considering how one’s portfolio or asset allocation is positioned. The amount of volatility in the market has ticked up measurably since the calmer and directionally positive markets we saw over the summer. While we tend to refrain from making specific calls on what strategy or strategies might work best in certain environments, it seems there is a case to be made that managers that have a positive correlation to volatility or have had success navigating extreme macro events may have opportunities to generate meaningful returns.