They say things are never black and white, but recent years of American politics would disagree. We live in a time where everything is a pendulum that just swings back and forth- typically every two years, right around election season. One party wins, they seize control, half the country is happy, the other not so much. This is followed by the happy side being not as happy anymore, the next election comes, and the other party takes control. The endless cycle of populism and increasingly polarizing politics continues. And every time, there are a lot of reactions and actions, but only a few have such a significant impact on our lives, no matter how indirect, like the stock market.
With rising tensions between Russia and Ukraine, the defense sector is expected to outperform the market regardless of the decision. Still, a Republican sweep sets the stage for spending to rise "significantly," according to UBS Global Wealth Management, versus "moderately" if Democrats retain one or both chambers of Congress. The focus is on stocks such as L3Harris Technologies Inc (LHX) and ETF funds that track the defense industry, like SPDR S&P Aerospace & Defense ETF (XAR).
The energy sector has had a noteworthy year, S&P 500 energy sector (SPNY) rising over 60% so far in 2022 while the broader index has slumped around 21%. The tension between the U.S. and OPEC+ countries has increased since the last decision to cut supply by 2 million barrels daily. Analysts expect that a republican win will mean that “Policies to encourage more U.S. energy production could result from Republican control of both the House and the Senate,” meaning that upstream companies would benefit however it would push crude oil prices down. More direct benefits from favorable industry regulations could filter through to shares of pipeline companies, such as Williams Cos, says Strategas.
Alternative energies might already have priced a republican victory, but a surprise democratic victory would make clean energy stocks gain momentum. An example is the Invesco Solar ETF (TAN.P), down about 6% this year. A democrat win would mean more favorable legislation in the form of incentives and tax cuts.
The healthcare and biotech market could favor a republican win. The democrats have shown tighter laws to make prescription drugs more accessible. The S&P 500 healthcare sector (.SPXHC) is down some 7% in 2022, while the S&P 500 pharmaceuticals index (.SPLRCCARG) is up about 1%.
The cannabis industry would highly benefit from a democrat win in congress. Odds of friendlier cannabis legislation increase with a Democratic majority, according to Strategas. The AdvisorShares Pure US Cannabis ETF (MSOS.P) is down over 55% this year.
The technology response to the winner side is unclear, Citi Analyst said, “probably means a legislative standstill, implying an incremental positive for the category." The Nasdaq tech-heavy index is experiencing a 34% decline year to date.
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Image retrieved from Hansen, S. (2022, November 8). The stock market ultimately doesn't care who wins the midterms. Yahoo! Retrieved November 10, 2022, from https://money.yahoo.com/stock-market-ultimately-doesn-t-185947570.html