The United States will hold midterm elections on November 8 at a critical juncture in world history. The elections come during a global economic slowdown, the Russia-Ukraine war, unrest in Iran, and pervasive inflation in the United States; and changes in the country’s politics could have an impact on all of them.
Regardless of which party wins or holds power, the markets typically perform well in the months following the midterm elections. This year’s polls are extremely close, so it might take a few days after Election Day to determine which party will control Congress. According to polling and projections, a split is currently the scenario with the greatest likelihood, with Republicans picking up seats in the House of Representatives and Democrats barely holding onto the Senate.
In either scenario, Joe Biden would continue to serve as president until 2025. Political observers might refer to this as gridlock, but markets would likely exhale in relief, according to financial industry experts.
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The CEO of one of the world’s largest independent financial advisory, asset management, and fintech organizations predicts that US stocks will experience an “impressive rally” this week as Republicans may win at least one chamber in the midterm elections. Nigel Green of the deVere Group said in The Financial Express, “History teaches us that a sitting president’s party sheds some level of power during these elections, splitting the executive and legislative branches of the US Government. This typically results in gridlock as lawmakers are unable or unwilling to agree on major legislation, meaning that substantial laws are either not approved or significantly reduced in scope and impact.” He further added, “This stalemate, while often infuriating for voters, is often good news for stock markets.”
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Why? Because there is less uncertainty for businesses when there are no significant legislative changes. When things are as they are, businesses can usually move forward with their plans and investments without worrying that new rules and regulations will change everything. As usual, some industries will be affected more than others. Due to the gridlock, it is likely that legislation reforms pertaining to big tech will come to an end, which “represents upside for the tech stocks,” according to the expert. As Democrats are pushing a bill to lower prescription drug prices, pharmaceutical and biotech stocks could benefit from a Republican wave.
Midterms heralded positive stock market performances in past
A windfall tax on oil producers proposed by Democrats is likely to be outdone, which could boost energy stocks should Republicans win at least one chamber, Green underlined. The deVere CEO stressed the significance of having a reliable investment plan as usual. Nigel Green concluded by saying, “Midterm elections have heralded positive stock market performances in the past and we expect to see an impressive rally this time too. This will be cheered by many investors who have endured a pretty bleak time on Wall Street this year.”
Further, as expected, the markets bounced back in October after a downturn in September. The S&P 500 index, which is more inclusive, increased 8% while the Dow Jones Industrial Average posted a gain of 14%, its best showing since 1976. Despite some well-known tech names reporting below-average third-quarter earnings, the tech-dominated Nasdaq saw a 3.9% increase.
The bear market, impending recession, and highest interest rates in 40 years all occurred at the same time as this rally. Markets frequently predict future economic conditions, indicating that economic forecasters and stock traders have different perspectives on the future of the economy.
The COVID-19 package, a bill to improve America’s semiconductor industry, and other legislation passed during the first two years of the Joe Biden administration were all examples of aggressive fiscal stimulus measures. The Federal Reserve flooded the economy with cheap credit at the same time, only to abruptly put the brakes on in March as inflation erupted.
No matter the election’s outcome, there is now a slim chance that there will be additional economic policy or stimulus. And it’s unlikely that will change if the Republicans regain control of either the House or the Senate, or even both.
