In This Article:
By Lewis Krauskopf
NEW YORK, Nov 7 (Reuters) - Investors are turning their focus to Tuesday’s U.S. midterm elections, which will determine control of Congress and could spur moves in everything from energy companies to cannabis stocks.
Republicans have picked up momentum in polls and betting markets and analysts see a split government - with the GOP winning the House of Representatives and possibly the Senate - as the likely outcome possibly hindering Democratic President Joe Biden's agenda.
Traders also appear to be leaning toward a Republican win: a basket of stocks and other assets tracked by advisory firm Strategas that would be expected to do well after a Republican victory have outperformed a counterpart Democrat portfolio, indicating a roughly 70% chance that Republicans win both the House and Senate.
A split government could result in political gridlock that stymies major policy changes, an outcome that investors see as favorable for equities. Regardless of the winner, past midterm elections have ushered in a period of positive market performance, something investors would welcome after a year in which the S&P 500 has declined by nearly 21%.
Divided government could also, however, pave the way for partisan standoffs over raising the federal debt limit that could usher in worries of a U.S. default.
Here are some areas of the stock market that will be in focus as Americans head to the polls:
DEFENSE
Defense spending is expected to rise regardless of how Tuesday’s vote plays out, given geopolitical tensions such as the conflict in Ukraine. But a Republican sweep sets the stage for spending to rise "significantly," according to UBS Global Wealth Management, versus "moderately" if Democrats retain one or both chambers of Congress.
The outcome puts a focus on shares of defense contractors, such as Lockheed Martin or Raytheon Technologies . The S&P 500 aerospace and defense index is up nearly 10% this year.
ENERGY
Energy stocks have had a banner year, with the S&P 500 energy sector rising over 60% so far in 2022 while the broader index has slumped around 21%.
Policies to encourage more U.S. energy production could result from Republican control of both the House and the Senate, Citi analysts said.
While such legislation could be favorable for oil exploration companies, it may weigh on the stocks by pressuring oil prices, Citi analysts wrote.
More direct benefits from favorable industry regulations could filter through to shares of pipeline companies, such as Williams Cos, Strategas said.
CLEAN ENERGY