Wall Street braces for election-driven uncertainty as strategists assess whether the outcome could trigger a relief rally or fresh selling.
- Carson Group’s Ryan Detrick warns that a decisive sweep by either party could unsettle stocks.
- JPMorgan sees a roughly 0.5% S&P 500 decline if Democrats sweep Congress.
- JPMorgan noted that the S&P 500 has historically averaged a 6.6% gain in the fourth quarter of midterm years.
Major US indices opened mixed on Tuesday as polls opened, with the Dow Jones Industrial Average falling 182.38 points, the S&P 500 gaining 0.11%, and the Nasdaq Composite rising 0.38% in opening trade.
According to UBS Global Wealth Management’s CIO, midterms are not to be viewed as a binary market event. While the results could influence the medium-term outlook, UBS expects AI investment, economic growth, corporate earnings, inflation and interest rates to remain the primary drivers of stocks.
On Stocktwits, retail investors’ sentiment was ‘bearish’ for the SPDR S&P 500 ETF (SPY) and the Invesco QQQ Trust (QQQ), while sentiment toward the SPDR Dow Jones Industrial Average ETF Trust (DIA) was ‘neutral.’
How Stocks Could React To Midterm Outcomes
According to Carson Group chief market strategist Ryan Detrick, markets could find relief once election uncertainty fades. “There’s some anxiousness before these elections,” he told CNBC, adding, “Once you are through it, it’s a big relief, and markets tend to do pretty well.”
However, the analyst cautioned that a decisive sweep by either party could unsettle stocks, as greater political control could lead to increased spending and concentrated power.
JPMorgan expects a Democratic sweep of Congress to push the S&P 500 down about 0.5% on Wednesday. Conversely, Wells Fargo Investment Institute’s head of global equities and real assets, Sameer Samana, told CNBC that Republicans retaining control of both chambers could trigger a rally.
“From a certainty standpoint, the market knows what to do with Republicans holding both chambers,” Samana said.
JPMorgan: Economic Factors Trump Midterm Results
JPMorgan Asset Management’s research found that the S&P 500 returned an average of 9.2% in midterm election years since 1937, compared with 13.3% in non-midterm years, with higher realized volatility.
The firm noted that average returns were slightly negative in each of the first three quarters of midterm years before rising an average of 6.6% in the fourth quarter. Historically, markets have also begun rallying just under a month before Election Day, regardless of the outcome.
However, JPMorgan emphasized that economic conditions matter more than political control in explaining market performance. It cited Federal Reserve rate hikes in 2018 and 2022, and the technology-sector downturn in 2002, as examples of midterm-year market weakness driven by factors unrelated to elections.
Treasury Yields, Oil Prices Edge Higher
U.S. Treasury yields edged higher Tuesday after a recent pullback, as voting began in the midterm elections and investors weighed a busy economic data calendar alongside renewed Middle East tensions.
The benchmark 10-year Treasury yield rose more than 2 basis points to 4.92%, while the 30-year yield climbed 1 basis point to 5.29%.
Oil prices also climbed following reports of renewed U.S. military action against Iran, reversing some of the previous day’s decline after the two countries’ presidents signaled openness to a diplomatic resolution.
U.S. officials told The Wall Street Journal that Washington struck Iran’s Qeshm Island late Monday and had been conducting “limited strikes” against the country in recent weeks.
See Also: US Midterm Elections: Yardeni Warns A Blue Wave Could Deliver ‘A Cold Shower For Stocks’ — UBS Sees Near-Term Volatility
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