U.S. stocks are likely to enjoy an “impressive rally” this week as Republicans could take at least one chamber in the midterm elections on Tuesday, in which all U.S. House and term-expired Senate seats are voted on.
“History teaches us that a sitting president’s party sheds some level of power during these elections, splitting the executive and legislative branches of the U.S. government,” said Nigel Green, chief executive of leading financial advisory and fintech deVere.
“This typically results in gridlock as lawmakers are unable or unwilling to agree on major legislation, meaning that substantial laws are either not approved or significantly reduced in scope and impact.”
The deVere CEO explained that this stalemate, while often infuriating for voters, is some times good news for stock markets.
“Because a lack of sweeping legislative changes means there is less uncertainty for businesses,” said Green.
“The status quo usually means that corporations can push on with their plans and investments without the risk of everything being upended by new laws and requirements.”
Some more impacted
Some sectors will be more impacted than others, as always.
Reforms to legislation on big tech can be expected to come to a halt due to the gridlock, which “represents upside for the tech stocks.”
Pharmaceutical and biotech stocks could also capitalize on a Republican wave, as Democrats are pursuing a bill to lower prescription drug prices. Meanwhile, energy stocks could be boosted should Republicans take at least one of the chambers because a windfall tax on oil producers proposed by Democrats is likely to be blocked.
The deVere CEO emphasised the importance of a trusted investment strategy.
“Ensuring your portfolio is properly diversified is one of the fundamentals of successful investing. Having a well-diversified portfolio across asset classes, sectors and regions means you are best-placed to mitigate risks and best-placed to take advantage of important opportunities.”
Green concluded that midterm elections have heralded positive stock market performances in the past and investors should expect to see an impressive rally this time too.
“This will be cheered by many investors who have endured a pretty bleak time on Wall Street this year.”