Republicans on Tuesday were on the cusp of a slim majority in the US House of Representatives after a week in which Democrats defied predictions of being swamped by a “red wave”.
A party needs 218 seats to win control of the 435-member lower chamber of Congress. As of Thursday morning, Republicans were in control of 217 to the Democrats' 206 seats. Results from 10 races were still pending.
The Republican Party was expected to make broad gains in the House during the midterm elections, but Democrat victories in moderate districts blunted the hopes of conservatives.
That has resulted in some Republicans pointing fingers over the party's lacklustre showing. Some have blamed former president Donald Trump, who propped up candidates that backed his debunked claims of fraud in the 2020 election.
But even with a slim majority, House Republicans could derail President Joe Biden's legislative agenda.
Control of the lower chamber would also allow Republicans to launch investigations into Mr Biden's family and administration. The withdrawal from Afghanistan and his son Hunter Biden are both expected to be targets of investigatory panels.
Department of Homeland Security Secretary Alejandro Mayorkas could also be a target as Republicans continue to attack the White House for its handling of the nation's migration crisis.
Some far-right Republicans have even mused about the possibility of impeaching Mr Biden.
In the run-up to the midterm elections last week, Republicans campaigned on the inflation crisis and security on the US southern border.
Any significant legislation passed by the Republican-controlled House faces little chance of being passed in the Senate, where Democrats remain in control, though Mr Biden has said he would be prepared to work with his Republican colleagues.
Republicans select nominee for House speaker
House Minority Leader Kevin McCarthy has received the backing of Republicans to continue as leader, even amid the party's underwhelming performance.
Members voted 188-31 to nominate Mr McCarthy as speaker of the House starting in January, when the Republican Party is expected to take control.
As House minority leader, Mr McCarthy has been the face of Republican opposition to the Democratic agenda and the January 6 committee. He also raised hundreds of millions of dollars during the midterm election cycle.
He faced one challenger, Andy Biggs of Arizona.
A slim majority for either party gives little room for dissent among its members. With the Republican Party divided into different factions of moderate conservatives, Trump loyalists, the Freedom Caucus and others, Mr McCarthy would have to secure near unanimity to pass any legislation.
House Speaker Nancy Pelosi and Democrats experienced the perils of a narrow majority last year, when the Progressive Caucus stalled Mr Biden's social spending and infrastructure bills.
The entire House of Representatives will vote on the next House speaker in January.
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Four reasons global stock markets are falling right now
There are many factors worrying investors right now and triggering a rush out of stock markets. Here are four of the biggest:
1. Rising US interest rates
The US Federal Reserve has increased interest rates three times this year in a bid to prevent its buoyant economy from overheating. They now stand at between 2 and 2.25 per cent and markets are pencilling in three more rises next year.
Kim Catechis, manager of the Legg Mason Martin Currie Global Emerging Markets Fund, says US inflation is rising and the Fed will continue to raise rates in 2019. “With inflationary pressures growing, an increasing number of corporates are guiding profitability expectations downwards for 2018 and 2019, citing the negative impact of rising costs.”
At the same time as rates are rising, central bankers in the US and Europe have been ending quantitative easing, bringing the era of cheap money to an end.
2. Stronger dollar
High US rates have driven up the value of the dollar and bond yields, and this is putting pressure on emerging market countries that took advantage of low interest rates to run up trillions in dollar-denominated debt. They have also suffered capital outflows as international investors have switched to the US, driving markets lower. Omar Negyal, portfolio manager of the JP Morgan Global Emerging Markets Income Trust, says this looks like a buying opportunity. “Despite short-term volatility we remain positive about long-term prospects and profitability for emerging markets.”
3. Global trade war
Ritu Vohora, investment director at fund manager M&G, says markets fear that US President Donald Trump’s spat with China will escalate into a full-blown global trade war, with both sides suffering. “The US economy is robust enough to absorb higher input costs now, but this may not be the case as tariffs escalate. However, with a host of factors hitting investor sentiment, this is becoming a stock picker’s market.”
4. Eurozone uncertainty
Europe faces two challenges right now in the shape of Brexit and the new populist government in eurozone member Italy.
Chris Beauchamp, chief market analyst at IG, which has offices in Dubai, says the stand-off between between Rome and Brussels threatens to become much more serious. "As with Brexit, neither side appears willing to step back from the edge, threatening more trouble down the line.”
The European economy may also be slowing, Mr Beauchamp warns. “A four-year low in eurozone manufacturing confidence highlights the fact that producers see a bumpy road ahead, with US-EU trade talks remaining a major question-mark for exporters.”
