Market Reaction to Mid-Term Elections
The mid-term elections this week resulted in Republicans taking control of Congress for the first time in 8 years. The market’s reaction was mildly positive with stocks up about 1% in the two days following the election. Among the winners were coal companies and financials, both of which could benefit from a more friendly regulatory environment, and medical device companies, due to the potential repeal of the Obamacare tax on medical devices. Mid-term elections tend to be a positive for the market, regardless of who wins, as stocks typically outperform in the following months. This kind of historical fact is difficult to explain but could have something to do with optimism (whether founded or not) about the new wave of politicians often voted in during mid-term elections.
Our view is that the elections are unlikely to have a major impact on the economy or the market in the near future. The president and Congress have been unable to work together on pro-business reforms to taxes, financial regulation and energy infrastructure for six years, and this is unlikely to change in the next 15 months. With political posturizing sure to increase as the 2016 presidential election gets closer, a continued stalemate is likely heading into 2016. A political stalemate isn’t necessarily bad for the markets, though, as long as the stalemate doesn’t escalate to the brink of a complete government shutdown like we’ve seen in the past. In any event, with the uncertainty of the election season and the end of QE now behind us and the holiday season approaching, the factors are in place for a slight uptick in the market in the next couple of months, barring any unexpected events. Based on our predictions before the year, we do not expect any major changes from the S&P’s current levels through the end of the year.
The link below is an article addressing the impact of the mid-term elections for investors.