How the Recent U.S. Midterm Elections Could Affect the Stock Market

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The U.S. midterm elections determine Congress control, and investors are watching the stock market with bated breath as outcomes establish movements. 

Polls saw the Republicans pick up speed, but stock market analysts are predicting a split government, potentially hindering President Joe Biden’s agenda. With Republicans winning the House, traders are expecting a range of stocks tracked by Strategas to perform well.

Historically, midterm elections have welcomed positive stock market performances. And with election outcomes, investors hope this year will be no different. After all, the S&P 500 declined by almost 21% over the past 12 months. 

The Most Affected Stock Market Areas

While a split government could cause a political gridlock, putting a stop to policy reform, it could pave the way for standoffs over raising the country’s debt limit.

With outcomes on the horizon, investors believe the following areas of the stock market will be impacted the most:

Energy

This year, energy stocks have risen over 60%, despite the overall market decline of 21%. And should Republicans gain Congress control, the United States of America’s energy production may increase. 

Oil exploration companies will no doubt reap the rewards from that. However, it could weigh stocks down due to inclining oil prices and cement any favorable movements in the clean energy sector. 

That said, a shocking Democratic victory could boost the alternative energy market, with State Street Global Advisors acknowledging the legislation changes that support clean efforts. 

Defense

Regardless of the midterm outcome, the country’s defense spending is expected to rise due to the growing geopolitical tensions, like the ongoing Ukrainian conflict.

Although, a Republican win could mean “considerable” sector increases, as per the UBS Global Wealth Management’s report. In contrast, a Democratic win sees “moderate” rises. 

Raytheon Technologies and Lockheed Martin are the main focal points for market investors amid polling outcomes. But even without extra positive movement, the defense index is already up by 10% in 2022. 

Healthcare

A Republican victory may benefit biotech and pharmaceutical stocks following a recent Democratic policy change focused on lowering prescription medication prices. 

The healthcare S&P 500 sector has decreased by roughly 7% this year. However, the pharmaceuticals index gained 1% during the last 12 months. 

Cannabis

Naturally, cannabis stocks (in particular, Canopy Growth) move every which way, depending on regulatory headlines, with legalization efforts taking center stage. 

Strategas predicts a Democratic victory will bring friendlier outcomes to the cannabis market, moving the stocks in a more positive manner.

Currently, the AdvisorShares Pure U.S. Cannabis ETF has been knocked down by a whopping 55% since the beginning of the year. 

Security

Border security is set to become a more pressing issue with a Republican majority, reports Strategas. 

Even though private prisons like Geo Group and CoreCivic have received less-than-positive headlines throughout Biden’s presidency, a divided government could see most related federal legislation risks disappear.

But even with the negative press, 2022 saw CoreCivic’s stock increase by 12% and Geo Group improve by 15%. 

Big Tech

Lastly, Citi analysts are unsure as to whether big tech reform will reign supreme with a split government. So, it’s likely that a Republican majority in either the House or Senate will see a legislative standstill. And with that comes a minor positive for the stock category. 

However, investors in the field are mired in doubt about friendly movement as the technology-filled Nasdaq 100 index is down by approximately one-third this year. 

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