Tuesday is arguably the day that every American, as well as investors in global stock markets, has been waiting for recently. Voting activities for the U.S. midterm elections will officially begin on Tuesday local time. If the result is that Republican people were far ahead from the beginning and eventually won the "red wave" victory that the market generally expected, Americans would be able to know the result as early as Tuesday night local time. In particular, US stock investors are very concerned about this result, because the election results may have a profound impact on their portfolios.
In addition, in addition to paying attention to whether the Republican Party can regain majority seats in both the Senate and the House of Representatives, the market also focuses on whether people's expectations of inflation will change due to control of the two houses, and how the majority will deal with the major problem of debt ceiling in the future, and what is the influence of the replacement of the ruling party on the financial market?
Zhitong Finance APP learned that early poll data showed that the Republican Party's expected votes in both the Senate and the House of Representatives were far ahead. However, as President Biden support rate rebounded, the gap narrowed in the summer. But RealClearPolitics poll data showed that the rebound in current President Biden's approval rating almost stagnated about six weeks ago.
poll shows that Biden's approval rating will not meet the expected target - Biden's approval rating has stabilized, and voters are still voting for the Republican Party What is the connection between this expectation of
and the probability of winning the midterm election ? Gambling website PredictIt.com provides a good measure. After the polls, voters changed their views over the summer, once believing that it was possible for Democrats to win in the Senate election. Now, it will be a major surprise besides the Republican victory in the House, but the Senate is also considered more likely to fall into the hands of the Republican Party.
Republicans have had a difficult summer - predictions show that the House of Representatives is safe for the Republicans, while the Senate is less optimistic
Whatever happens, now the owner of the White House - Democrats will have veto power in the next two years. However, if the Republicans gain control of the Congress, the Democratic agenda will not be fully adopted. On the other hand, the United States will see a split administration that will hinder Democrat Biden’s policy agenda and prevent any ambitious policy from passing smoothly.
In other words, a policy deadlock will follow, which may or may not be a bad thing, depending on which party voters support. The bipartisan split has become the current situation of . The volatility caused by political uncertainty is often not exaggerated. However, the point is that the Republican-controlled Congress often prompts stocks and risky assets to rise in the short term, at least from historical data.
The midterm election may become the strongest catalyst for US stocks in the short term
No matter what the result is, the midterm election cycle is generally a boom period for the US stock market. As shown in the overall comparison chart of past midterm elections with 2022, investment institution Strategas Research Partners, this is a typical U.S. stock market trend in past midterm election years.
Wall Street Well-known big bears - Morgan Stanley Chief strategist Michael Wilson said yesterday that investors should continue to be optimistic about the short-term U.S. stock market before this week's US midterm elections. Wilson had accurately predicted the plunge in the U.S. stock market this year.
Wilson wrote in a report on Monday that polls showed Republicans would win a majority in at least one of the House and Senate, which could be the strongest catalyst for the downward trend of U.S. bond yield and the rise in share price , which would be enough to keep the bear market rebound. It is understood that Wall Street banks generally hope that history can repeat itself—that is, the stock market will show an upward trend after the midterm elections.
The elimination of uncertainty is a big benefit for the stock market, and many strategists have been showing such a chart as a reason to be bullish. It needs to be alleviated by a problem that the current rate of vote counting is slowing down, and it is likely that there will be more and more political conflicts caused by the vote counting process itself this year.
Tuesday is arguably the day that every American, as well as investors in global stock markets, has been waiting for recently. Voting activities for the U.S. midterm elections will officially begin on Tuesday local time. If the result is that Republican people were far ahead from the beginning and eventually won the "red wave" victory that the market generally expected, Americans would be able to know the result as early as Tuesday night local time. In particular, US stock investors are very concerned about this result, because the election results may have a profound impact on their portfolios.
In addition, in addition to paying attention to whether the Republican Party can regain majority seats in both the Senate and the House of Representatives, the market also focuses on whether people's expectations of inflation will change due to control of the two houses, and how the majority will deal with the major problem of debt ceiling in the future, and what is the influence of the replacement of the ruling party on the financial market?
Zhitong Finance APP learned that early poll data showed that the Republican Party's expected votes in both the Senate and the House of Representatives were far ahead. However, as President Biden support rate rebounded, the gap narrowed in the summer. But RealClearPolitics poll data showed that the rebound in current President Biden's approval rating almost stagnated about six weeks ago.
poll shows that Biden's approval rating will not meet the expected target - Biden's approval rating has stabilized, and voters are still voting for the Republican Party What is the connection between this expectation of
and the probability of winning the midterm election ? Gambling website PredictIt.com provides a good measure. After the polls, voters changed their views over the summer, once believing that it was possible for Democrats to win in the Senate election. Now, it will be a major surprise besides the Republican victory in the House, but the Senate is also considered more likely to fall into the hands of the Republican Party.
Republicans have had a difficult summer - predictions show that the House of Representatives is safe for the Republicans, while the Senate is less optimistic
Whatever happens, now the owner of the White House - Democrats will have veto power in the next two years. However, if the Republicans gain control of the Congress, the Democratic agenda will not be fully adopted. On the other hand, the United States will see a split administration that will hinder Democrat Biden’s policy agenda and prevent any ambitious policy from passing smoothly.
In other words, a policy deadlock will follow, which may or may not be a bad thing, depending on which party voters support. The bipartisan split has become the current situation of . The volatility caused by political uncertainty is often not exaggerated. However, the point is that the Republican-controlled Congress often prompts stocks and risky assets to rise in the short term, at least from historical data.
The midterm election may become the strongest catalyst for US stocks in the short term
No matter what the result is, the midterm election cycle is generally a boom period for the US stock market. As shown in the overall comparison chart of past midterm elections with 2022, investment institution Strategas Research Partners, this is a typical U.S. stock market trend in past midterm election years.
Wall Street Well-known big bears - Morgan Stanley Chief strategist Michael Wilson said yesterday that investors should continue to be optimistic about the short-term U.S. stock market before this week's US midterm elections. Wilson had accurately predicted the plunge in the U.S. stock market this year.
Wilson wrote in a report on Monday that polls showed Republicans would win a majority in at least one of the House and Senate, which could be the strongest catalyst for the downward trend of U.S. bond yield and the rise in share price , which would be enough to keep the bear market rebound. It is understood that Wall Street banks generally hope that history can repeat itself—that is, the stock market will show an upward trend after the midterm elections.
The elimination of uncertainty is a big benefit for the stock market, and many strategists have been showing such a chart as a reason to be bullish. It needs to be alleviated by a problem that the current rate of vote counting is slowing down, and it is likely that there will be more and more political conflicts caused by the vote counting process itself this year.
If the election results are closer than what it seems now, then Pennsylvania — it may be crucial to the Senate results, and statistics may make American voters wait for the week. If candidates from both parties do not win 50% of the vote in Georgia , the state's senator campaign will hold a tiebreaker election next January. If, as was the case two years ago, the Democratic victory in Georgia was enough to give them effective control over the Senate, we might have to wait a few more months than usual to solve the reality of uncertainty.
That is to say, if the election is "one-sided", such as Republicans receive more than expected votes, then Republicans may declare a big victory within a few hours after the vote is over. But if the election situation is very stalemate, the election results may not be announced until several days or even weeks later.
Which U.S. stocks deserve attention during the midterm elections?
Although who in the end the president has a very limited impact on the stock market, in general, accurate election results may also have a profound impact on individual stocks. analyst Dan Clifton from the above-mentioned investment institution Strategas proposed two stock portfolios of based on possible results.
One is that the Republican Party wins a great victory, the other is that the Democratic Party wins a great victory. One of the few common themes of these two portfolios is inflation. In addition, different industries such as defense, energy and cannabis may also be affected. is listed below, which summarizes Dan Clifton's suggested portfolios to gain a clearer understanding of the differences.
Strategas' 2022 stock portfolio is compiled, including the industry and stock code
As the conflict between Russia and Ukraine is intensifying, the "Republican portfolio" prefers defense stocks, and police forces and immigration law enforcement forces that strengthen border security may become priority, and companies that will benefit the most from the cancellation of corporate tax increases may not benefit until the next election in 2024. Meanwhile, the “Democratic portfolio” includes clean energy stocks, companies that will not be damaged by the “stock buyback tax” proposed by the Democrats, and beneficiaries of the state budget plan.
Defense industry can be said to be an industry that has benefited greatly from the Russian-Ukrainian conflict:
Traditionally, Republican leaders have been much more generous in defense spending than the Democrats, so it may be a good bet to continue this situation. It should be noted, however, that as most Republicans increasingly speak out against further escalation in the situation in Ukraine, this should not be seen as a 100% sure of the portfolio that will benefit.
Will the election result lead to the United States putting pressure on Ukraine to force it to reach a peace agreement through negotiation? Many strategic analysts believe this is possible. This may be a good thing for global economy , but it may be a major downside for defense stock holders.
inflation expectations will change due to control of the two houses?
At the top-down macro level, the most important thing is the impact of election results on U.S. inflation rate and macroeconomic policies. If the Democrats win, they will have full control and may push the rest of their spending agenda, a move that could be seen by the market as "pushing up inflation" (although this may be good for stocks that benefit from generous government aid).
As the House seems almost certain to turn to Republican control at the moment, any accident can have a huge impact. If the Republicans win the House, Senate or both Houses, the deadlock could limit a significant increase in federal spending, which could be said to help "pull down inflation" for financial markets.
Morgan Stanley strategist Mike Wilson said on Monday: " If this is a decisive victory for the Republican Party, the midterm elections may have lasting effects because, as I said before, we think that most of the surge in inflation is the result of excessive fiscal spending, and of course, even if the Republicans win only one House, inflation will be suppressed... Ultimately, this should be good for the bond market." More than a year of research has shown that the bond market seems to favor "hybrid government."This often means that excessive lending is impossible, which is beneficial to bond investors. Barry Gilbert and Jeffrey Buchbinder from LPL Financial believe that the stock market is the same, but relatively less obvious.
Statistics since 1951 show that in the context of the Democratic president and the Republican or split Congress (the result is likely to appear at present), the average return of the S&P 500 index exceeds 17%, while the overall average return of the US stock market is only slightly higher than 12%. On the contrary, the market has seen equally strong returns in the context of a split Congress and Republican president.
How will the majority party deal with the big problem of debt ceiling?
All of this has an uncertain factor - , that is, how will the majority Republican Party perform in Congress. 2011 was one of the few years after the midterm elections when U.S. stocks plummeted after the midterm elections, when the " Tea Party" wave swept the Republicans to control both the Senate and the House of Representatives. Subsequently, a marginal policy was adopted around whether to raise the federal debt limit, which actually meant a threat to the United States default on some of its Treasuries, that is, defaulting on some Treasuries. As we all know, Standard Poor's (Standard Poor's) thus canceled the US AAA credit rating, and the market subsequently sold out sharply, and it did not rebound dramatically until the deadlock was resolved in August 2011 and the debt ceiling increased.
After the midterm elections in 2010, the result of the deadlock was irrational—a turbulent year of marginal policy surrounding the federal debt ceiling
What is abnormal is that US Treasury price actually rose after being downgraded (returns are contrary to price trends), as most international investors still see it as the best safe haven in times of crisis. But overall, it's one of the weirdest and most dangerous years in market history, and no one wants to see this happen again.
More importantly, no one wants to know what would happen if Congress really forced the sovereign debt default , but that certainly wouldn't make the market optimistic.
Ian Lyngen of BMO Capital Markets said his biggest concern is what happens after the midterm elections: "The uncertainty is to what extent the midterm election results indirectly support Trump as the 2024 presidential candidate — a reality that could eventually trigger a larger reaction to risky assets."
Bipan Rai from Imperial Bank of Canada He said: "The real drama will happen next spring or summer, when people's concerns about the scale of debt ceiling will heat up again, and various unconventional measures are expected to be exhausted."
This time, against the backdrop of high inflation and a plunge in the bond market, how Congress will deal with the debt ceiling in the future will be the focus of market attention. From the results of this midterm election, including the historical views of elected lawmakers on debt ceiling, you may be able to see relevant clues.
"Investors should not pay too much attention to the future ruling party, but should pay more attention to the actions of Feder ."
How will the future ruling party have influence on the financial market is also the focus of market attention. However, analysts and academic circles currently believe that the ruling party is not the real protagonist. A key point of Wilson, chief strategist at Morgan Stanley, is that the surge in inflation is driven primarily by excessive spending, both in 2020 and 2021. Of course, this is controversial. Some analysts believe that this inflation is a monetary phenomenon driven by a large increase in money supply in response to the new crown epidemic. According to this view, it is the Federal Reserve that has put the market in a dilemma. Now, it may be the Federal Reserve's turn to lead the market out of the dilemma completely.
Christopher Smart from Baring Investment Research Institute believes: "This medium-term cycle has no significance at all, because in the end it all comes down to the attitude and policies of the Federal Reserve."
" To be honest, given that voters are still divided, it is difficult to imagine any new direction for economic policy even if the 2024 presidential election is approaching... The ultimate political power may still be in the hands of voters, but in the next few years, the direction of the economy is almost entirely in the hands of the Federal Reserve and its 'hard-core tools' that control inflation and support employment levels. "
This is also the conclusion of an influential study published in 2012, called "What should you expect when you participate in an election."
" Securities investment returns are closely related to the transformation of the Federal Reserve's monetary policy , political impasse and the years of the president's term; However, the level of investment returns is usually constant with the president's party relationship. Overall, our findings suggest that investors should not pay too much attention to which party is the ruling party in the future, but should pay more attention to the actions of the Federal Reserve. Furthermore, political harmony seems to be welcomed by stock investors rather than bond investors. " The study pointed out.
has an analytical view that in a country where political parties are increasingly divided, it is unlikely that anyone will be very excited about the results. But as long as Republicans no longer overestimate their own strength, Republicans' victory will be slightly helpful to the bond market and therefore will also help the stock market. Fed officials who will remain in office until the next presidential election will still have a much greater impact on the market than party figures.
This often means that excessive lending is impossible, which is beneficial to bond investors. Barry Gilbert and Jeffrey Buchbinder from LPL Financial believe that the stock market is the same, but relatively less obvious.Statistics since 1951 show that in the context of the Democratic president and the Republican or split Congress (the result is likely to appear at present), the average return of the S&P 500 index exceeds 17%, while the overall average return of the US stock market is only slightly higher than 12%. On the contrary, the market has seen equally strong returns in the context of a split Congress and Republican president.
How will the majority party deal with the big problem of debt ceiling?
All of this has an uncertain factor - , that is, how will the majority Republican Party perform in Congress. 2011 was one of the few years after the midterm elections when U.S. stocks plummeted after the midterm elections, when the " Tea Party" wave swept the Republicans to control both the Senate and the House of Representatives. Subsequently, a marginal policy was adopted around whether to raise the federal debt limit, which actually meant a threat to the United States default on some of its Treasuries, that is, defaulting on some Treasuries. As we all know, Standard Poor's (Standard Poor's) thus canceled the US AAA credit rating, and the market subsequently sold out sharply, and it did not rebound dramatically until the deadlock was resolved in August 2011 and the debt ceiling increased.
After the midterm elections in 2010, the result of the deadlock was irrational—a turbulent year of marginal policy surrounding the federal debt ceiling
What is abnormal is that US Treasury price actually rose after being downgraded (returns are contrary to price trends), as most international investors still see it as the best safe haven in times of crisis. But overall, it's one of the weirdest and most dangerous years in market history, and no one wants to see this happen again.
More importantly, no one wants to know what would happen if Congress really forced the sovereign debt default , but that certainly wouldn't make the market optimistic.
Ian Lyngen of BMO Capital Markets said his biggest concern is what happens after the midterm elections: "The uncertainty is to what extent the midterm election results indirectly support Trump as the 2024 presidential candidate — a reality that could eventually trigger a larger reaction to risky assets."
Bipan Rai from Imperial Bank of Canada He said: "The real drama will happen next spring or summer, when people's concerns about the scale of debt ceiling will heat up again, and various unconventional measures are expected to be exhausted."
This time, against the backdrop of high inflation and a plunge in the bond market, how Congress will deal with the debt ceiling in the future will be the focus of market attention. From the results of this midterm election, including the historical views of elected lawmakers on debt ceiling, you may be able to see relevant clues.
"Investors should not pay too much attention to the future ruling party, but should pay more attention to the actions of Feder ."
How will the future ruling party have influence on the financial market is also the focus of market attention. However, analysts and academic circles currently believe that the ruling party is not the real protagonist. A key point of Wilson, chief strategist at Morgan Stanley, is that the surge in inflation is driven primarily by excessive spending, both in 2020 and 2021. Of course, this is controversial. Some analysts believe that this inflation is a monetary phenomenon driven by a large increase in money supply in response to the new crown epidemic. According to this view, it is the Federal Reserve that has put the market in a dilemma. Now, it may be the Federal Reserve's turn to lead the market out of the dilemma completely.
Christopher Smart from Baring Investment Research Institute believes: "This medium-term cycle has no significance at all, because in the end it all comes down to the attitude and policies of the Federal Reserve."
" To be honest, given that voters are still divided, it is difficult to imagine any new direction for economic policy even if the 2024 presidential election is approaching... The ultimate political power may still be in the hands of voters, but in the next few years, the direction of the economy is almost entirely in the hands of the Federal Reserve and its 'hard-core tools' that control inflation and support employment levels. "
This is also the conclusion of an influential study published in 2012, called "What should you expect when you participate in an election."
" Securities investment returns are closely related to the transformation of the Federal Reserve's monetary policy , political impasse and the years of the president's term; However, the level of investment returns is usually constant with the president's party relationship. Overall, our findings suggest that investors should not pay too much attention to which party is the ruling party in the future, but should pay more attention to the actions of the Federal Reserve. Furthermore, political harmony seems to be welcomed by stock investors rather than bond investors. " The study pointed out.
has an analytical view that in a country where political parties are increasingly divided, it is unlikely that anyone will be very excited about the results. But as long as Republicans no longer overestimate their own strength, Republicans' victory will be slightly helpful to the bond market and therefore will also help the stock market. Fed officials who will remain in office until the next presidential election will still have a much greater impact on the market than party figures.
