Telemus Weekly Market Review October 17th - October 21st, 2022
As we are reminded every time we turn on the television these days, the mid-term elections are a couple weeks away. Mid-term elections tend not to be as impactful on market behavior as presidential. However, they can swing sentiment based on expected policy changes. So how might markets move depending on the outcome?
Markets tend to prefer gridlock. Not that gridlock is necessarily good for policy, but it often means the status quo will remain and that things won’t change. Less change means less uncertainty for investors. A Republican majority in either the house or the senate would have a greater probability of near-term grid lock. Therefore, we would expect Republicans taking a chamber to be viewed favorably by markets. Should democrats retain control of the house and senate, investors may express a greater interest in potential benefactors of democratic policies such as clean energy and health care.
The prospect exists for Democrats having a similar circumstance as they’ve had the last two years. Having a majority but not strong enough where they can push policies without having full cooperation the entire caucus. With a presidential election two years out, under this scenario, we might experience some progress on policy, particularly in areas where there is sufficient bi-partisan support.
This election cycle has been unusual as there has been a lack of market attention on the mid-terms. Typically markets begin to see volumes slow and volatility eases as investors await the outcome of the election before determining how to position portfolios. This time around, we think the market is likely to give little attention to the final outcome as focus is expected to remain on more pressing influences such as inflation, interest rates, and a slowing economy. These factors have a much greater impact on asset prices than speculation around policy. In addition, polls seem to indicate it is reasonably likely that Republicans will take at least one chamber. Thus, gridlock will ensue, and the investment community seems willing to return its focus back toward the key themes that have driven markets thus far in 2022.
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