Harvest Global Markets :

The US mid-term elections have befallen at a time whenthe US economy is going through several economic and political vulnerabilities. Healthcare, energy and defense are among the areas of the stock market that could see the most volatility in the wake of the election.The two opposing parties have distinct outlooks on public policies. The Republicans tend to focus on the younger population by encouraging business activities and keeping taxes low. Whereas the Democrats have been more inclined towards heavy government spending, providing robust social security and Medicare to the elderly segment of the population.

The Biden administration has been quite unpopular amidst inflationary pressures as the Republicans consider the government has not done enough to sustain the well-being of the economy.  However, in irony – Inflation which is the biggest concern for the majority of voters, entirely controlled by FED, which is an independent entity and alters the monetary policy in accordance with the market movements irrespective of the existing political regime.  Hence, both candidates do not have much power to intervene in the FED proceedings but are aggressively pursuing this stance. 

Gas prices, which are tied closely to international factors, are in the same bucket of concern. Congress could potentially bring down prices by enacting a gas tax holiday or ordering the release of petroleum reserves (as Biden has done), but that impact is going to be pretty small.

Looking at the exit polls, even a narrow Republican majority in the House would be able to block Biden’s legislative priorities while also launching politically damaging investigations into his administration and family.

Investors provide a variety of explanations for the post-midterm election tailwind, with some claiming that the vote often results in a clearer picture of government policies.However, others are apprehensive that the record may be atrisk this year due to worries that the country is facing acute economic crunch.

Even while investors often prefer political stability, one effect of a divided government may be a contentious battle over extending the US debt ceiling, which may heighten worries about a US default and increase market turbulence.