How Joe Biden’s midterm election performance could affect the US stock market
- Losing control of the House or Senate would make it harder for Biden to pass his agenda of reform on taxes, energy and welfare
- Policies can still be pushed through via executive order although this would add to uncertainty for investors and businesses
The midterm elections will be held on November 8 next year. All 435 seats in the House of Representatives and 34 of the 100 Senate seats are up for grabs.
The Democratic Party may have a majority in both chambers, but it is very thin. Democrats hold 221 seats to the Republican Party’s 213 in the House. The Senate is split 50-50 and Vice-President Kamala Harris casts the tiebreaker vote.
Midterm elections have never been kind to the incumbent party. Since 1942, the party in office has lost midterm seats in the House in 18 out of 20 elections, including double-digit losses on 15 occasions. The results are similar for the Senate, where seats were lost in 14 of 20 midterm votes.
This suggests Biden and the Democratic Party are facing an uphill battle, made more challenging by recent events. Biden’s approval rating declined after the post-inauguration honeymoon period – normal for any president in recent history.
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The infrastructure bill was passed with support from a number of Republicans, but they do not support the Build Back Better plan. This plan, which is likely to be significantly reduced, represents Democrat progressives’ wish list in providing better child care, health care, tax credit for low-income families and education.
A year is a long time in politics and a lot can still change. The Democrats need to stage a spectacular comeback to regain public support and maintain control of both the House and Senate.
Even though some policies could be pushed through via executive order, businesses may not have the confidence to add investment if the orders could be overturned. Investors may welcome the reduced risk of higher taxes, but worry about the uncertainties facing decarbonisation.
So there is no “one size fits all” answer to how the US midterm elections could affect the stock market. Investors will have to analyse the fundamentals of individual sectors and companies, and take account of the prevailing political climate in the US.
Tai Hui is chief market strategist for the Asia-Pacific at JP Morgan Asset Management