Investors are talking about the potential for the midterm elections to spark a stock-market bounce, arguing that the potential for a divided government if Republicans take control of one or both chambers would be positive news.
Many investors are talking about the potential for Tuesday’s midterm congressional elections to spark a stock-market bounce, arguing that the potential for a divided government if Republicans take control of one or both chambers would be positive news.“At its recent high, the S&P 500 was already up about 9% off of its mid-October low, exceeding the typical bounce of about 7%.
They acknowledge, however, that the sample size is nonetheless limited. And past results, of course, are no guarantee of future results. A split Congress, with Republicans winning the House but the Senate staying under Democratic control would likely result in a “mild rally,” said Tom Essaye, founder of Sevens Report Research, in a Tuesday note. A Republican sweep of both houses would likely produce the same result, he predicted.
“We also think that if Republicans take back control of both chambers, it will be viewed by equity market participants as pointing to good momentum for Republicans heading into the presidential race in 2024,” she said. “To the extent that 2022 turns out to be a wave election for Republicans, the bigger the wave, the more impactful we think it will be for U.S. equities in the short term and into next year.
If Democrats managed to hold off Republicans in both the House and Senate, the reaction is likely to be a “moderate decline,” he said. A broad fall for equities would likely be led by tech and high-growth sectors, while Treasury yields would likely see a modest rise and the dollar index would bounce, putting pressure on commodities.
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