What impact will the midterm elections have on the stock market?

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It may be a few weeks before we find out which political parties control both houses of Congress after last week’s midterm elections. Whoever wins, a rally is expected in the stock market in the coming weeks. However, this does not mean that you wait for the results to develop an investment strategy that matches market trends.

Overall, it is clear that the expected “red wave” has not materialized. The GOP has done pretty poorly, even though it will likely win the House. Overall though, we are heading towards a balanced government, which could potentially be something the markets admire.

A divided government could be great for business because Democrats won’t be able to pass legislation to raise taxes. Government spending could also be lower, which would reduce inflation and have a positive impact on equities.

Nevertheless, the impact of the US mid-term elections should ripple through the markets over the next few weeks, especially during the fourth quarter.

Stocks are likely to perform much better after the mid-terms

Historically, the stock market has tended to react positively to a divided Congress, with investors generally preferring stability to chaos. This year is no different, as the market has been steadily increasing for the past few weeks. Of course, timing is also a factor, as stocks generally fare better immediately following a midterm election.

Additionally, the third year of a presidential term has always been the strongest for the stock market, regardless of which party controls Congress. So regardless of the outcome of the midterm elections, the stock market is likely to continue to rise in the coming months.

Midterm elections have historically had a major impact on the stock market, although this impact has not always been positive. The market typically experiences a small bump in the months leading up to a midterm election, followed by a larger rally the day after the election. In the year following the midterms, the S&P 500 averaged a return of more than 15%. Moreover, most of the returns were generated during the first three months of the elections.

What impact will the midterm election results have on individual sectors?

Different sectors of the economy are likely to be affected differently depending on the control of a particular party. For example, if the Democrats win, the cannabis and clean energy sectors will likely benefit. On the other hand, if the Republicans win, sectors such as oil and gas and health care will likely benefit.

However, there are some sectors, such as defense and infrastructure, where the two political parties seem to have a common vision. So whoever wins the midterm elections, some sectors are likely to remain relatively untouched.

There has always been a clear divide between Democrats and Republicans regarding funding for clean energy initiatives. Democrats have traditionally favored investment in green energy, while Republicans have favored more traditional forms of energy. This political divide has had major ramifications for clean energy stocks.

In recent years, clean energy stocks have soared as investors anticipate a shift towards renewables. However, with Republicans in control of the government, that change is unlikely to happen anytime soon. Instead, we can expect much less spending on green initiatives and more theoretical technologies, such as carbon capture, solid state batteries and other areas.

A divided Congress will make tax legislation difficult to pass

It will be interesting to see how the prospects of significant upcoming tax legislation could help financial markets past the mid-terms. While the Organization for Economic Co-operation and Development (OECD) has proposed a global corporate tax rate of 15% by 2023, its mandate would need to be passed by the legislature for it to take effect – and it this is where things get complicated.

If Congress remains divided after the election, Republicans will likely demand high concessions to accept the OECD. These concessions will have to be very convincing for Republicans to get them to move, perhaps individual tax cuts. Therefore, the future of this bill and any other major tax law could have a significant impact on the market.

Conclusion: Markets tend to do well regardless of political party

History shows that markets tend to behave equally well regardless of which party controls Congress. Also, with the current uncertainty surrounding the election, it’s best to avoid making rash decisions that could negatively impact your portfolio. By staying the course and maintaining a diversified portfolio, you can weather any turbulence that may arise from the midterm elections and position yourself for long-term success.

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