2 stock sectors that perform best after the mid-terms

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  • The midterm elections in the United States are only three weeks away.
  • But investors seem less concerned about them than in the past, says Goldman Sachs.
  • The election will likely still have implications for stock market sectors, the bank said.

Usually, the midterm elections that are only three weeks away are high on investors’ list of worries, as uncertainty surrounds future regulation and fiscal policy.

And generally, the political clarity that emerged after the end of the election gave a huge boost to stocks. In the 12 months following the midterm elections, the S&P 500 historically rose 17%.

stock market returns after mid-terms

Goldman Sachs



But things are different this year, according to Goldman Sachs. Factors such as inflation, monetary policy tightening and the risk it poses to the economy, and geopolitics dominate investors’ minds – so the November election outcome is unlikely to impact on the broader market in the same way it has in the past, the investment bank said in a note to clients last week.

“Since 1932, the 12 months following the midterm elections have historically been the strongest year for stocks in the four-year presidential cycle,” a team of strategists led by Ben Snider said in the note. “Over the past 90 years, stocks have generated positive returns in 21 of those 22 years, with 1939 – alongside the start of World War II – the only exception.”

Snider continued, “This year, however, we believe the election outcome will rank low on the list of macro drivers of stock market returns. The term structure of S&P 500 volatility and our recent conversations with investors support this view.

But the outcome will still have implications for investors, the strategists said, and some sectors stand to benefit from varying outcomes.

If the most likely outcome of Republicans taking over at least one house of Congress unfolds — meaning Congress will be divided — healthcare inventory would be in the best position, they said. So far, health care sub-sectors like biotechnology and pharmaceuticals have been more inversely correlated with Democrats’ chances of keeping control of Congress than any other area of ​​the market, the memo says.

A divided Congress would likely mean less regulation in the industry, as Democrats push for policies like lowering prescription drug prices.

The Vanguard Health Care ETF (VHT) provides exposure to the healthcare sector.

Meanwhile, if Democrats retain control of both houses of Congress, market areas like renewable energy companies and infrastructure-related stocks would do well, as Democrats are more likely to spend on those themes.

The Invesco Global Clean Energy (PBD) ETF and the Global X US Infrastructure Development (PAVE) ETF provide exposure to these areas. However, prediction markets currently only assign a 15% chance that Democrats will win the election, the strategists pointed out.

midterm election odds

Goldman Sachs



Regardless of the outcome, however, two sectors of the market outperformed the most in the two months following the mid-terms: computer science and Health care. The sectors also performed well in the months leading up to the elections.

midterm elections investment

Goldman Sachs



The Vanguard Information Technology Index Fund (VGT) provides exposure to the information technology sector.

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