Midterm elections could boost or hinder energy and tech stocks

Midterm elections could boost or hinder energy and tech stocks

As Americans prepare for Tuesday’s midterm elections to determine which party controls Congress, investors expect the races to have a significant impact on the stock market.

With polls showing a strong Republican lead in congressional races and a stalemate in many Senate races, some traders are bracing for a GOP victory. Otherwise, the political stalemate caused by a divided government is also generally seen as favorable to investors who want their stocks unaffected by major political moves.

With the S&P 500 down nearly 21% over the past year, investors seem to be betting on a Republican victory. A basket of stocks and other assets tracked by advisory firm Strategas that is expected to do well after a Republican win outperformed a peer Democratic portfolio, indicating a roughly 70% chance Republicans will win both the House and the Senate.

Defense spending is expected to rise regardless of which party takes power, signaling a positive future for shareholders. Experts say stocks of defense contractors such as Lockheed Martin (LMT.N) or Raytheon Technologies (RTX.N) would likely benefit significantly from a Republican sweep, as opposed to moderate growth with a Democratic majority.

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Investors at work

Investors are closely watching the outcome of Tuesday’s midterm elections. The results could have a major impact on the stock market. (Getty Images)

Pharmaceutical and biotech stocks should also benefit from a Republican victory, given recent legislation by Democrats to reduce prescription drug prices. While the S&P 500 Pharmaceuticals Index (.SPLRCCARG) is up about 1%, the S&P 500 Healthcare Index (.SPXHC) is down about 7%.

Energy stocks have had a great year, with the S&P 500 (.SPNY) energy sector skyrocketing more than 60% in 2022. While Republicans control both the House and Senate, the policies that encourage domestic energy production could be favorable to shareholders of oil exploration and pipeline companies.

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Biden speaks with reporters

President Biden speaks with the media before boarding Air Force One at Marine Corps Air Station Miramar in San Diego, Calif., Nov. 4, 2022. (Getty Images)

Clean energy stocks, on the other hand, will do well if the Democrats land a surprise victory. While Invesco Solar ETF (TAN.P) is down about 6%, legislation promoting solar power and other alternatives would boost the clean energy sector.

Cannabis stocks would also likely benefit from a Democratic victory, as they have historically been in the regulatory headlines. The AdvisorShares Pure US Cannabis ETF (MSOS.P) is down more than 55% this year.

Investors watching stocks

The S&P 500 is down nearly 21% over the past year, although the S&P 500 energy sector (.SPNY) is up more than 60%. (AP Pictures)

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It’s unclear how big tech stocks would benefit from a midterm election result. Citi analysts predict that a Republican majority would lead to a “legislative deadlock, implying an additional positive effect for the category.” The Nasdaq 100 Index (.NDX), which is heavily weighted towards tech stocks, fell around 33% in 2022.

Reuters contributed to this report.

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