Premarket Equities: What the Midterm Elections Could Mean for the U.S. Economy

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Tuesday’s midterm elections come at a time of economic vulnerability for the United States. Recession predictions have largely shifted to the “when” not the “if” and inflation remains stubbornly high. Americans are feeling the pain of rising interest rates and facing a winter filled with geopolitical tensions.

The results of Tuesday’s election will determine the makeup of a congressional body that has the potential to pass policies that will fundamentally change the fiscal landscape.

Here’s a look at the political issues that investors will be paying close attention to as they digest the election results.

Tax changes: Last week, President Joe Biden suggested he could impose a windfall tax on big oil companies after posting record profits on high gas prices. Republicans would be less likely to approve of this windfall tax on oil company profits and generally do not favor tax hikes on the wealthy, reports my colleague Paul R. La Monica.

“What do the mid-terms mean for the markets? If the Republicans get the House, the tax hikes are dead in the water, said David Wagner, portfolio manager at Aptus Capital Advisors.

What about tax cuts? If Republicans take control of Congress, it would be difficult to pass major tax cuts without the support of Democrats or President Biden, which means there could be grandstanding without much action.

Debt limit: The federal debt ceiling was last lifted in December 2021 and will likely be hit by the Treasury at some point next year. This means that it will have to be raised again to ensure that America can borrow the money it needs to run its government and keep the US Treasury market running smoothly, totaling around $24 trillion.

A fight seems to be brewing between Democrats and Republicans. House Republicans indicate they may seek deep spending cuts in exchange for raising the ceiling.

If the government ends up split and the tightrope strategy continues, there could be bad news for the markets. The last time such a traffic jam Under the Obama administration in 2011, the United States lost its perfect AAA credit rating from Standard & Poor’s and stocks fell more than 5%.

Expenses: Democrats have signaled they intend to focus on parts of President Biden’s proposed 2021 budget package that don’t yet have the force of law, including expanding health coverage and health care funding. tax for child care. A Republican victory or stalemate could lay that down. Goldman Sachs economists also note that a Democratic victory could likely increase the federal fiscal response in a recession, while Republicans would be more likely to avoid costly relief programs.

Social Security: Popular programs like Social Security and Medicare are facing long-term solvency issues, and the topic has become a hot topic on both sides of the aisle. The subject is so closely watched that even the debate over the changes could impact consumer confidence, analysts say.

Democratic Sen. Joe Manchin said last week spending changes needed to be made to shore up Social Security and other programs he said were “bankrupt.” He told a Fortune CEO conference that he favors bipartisan legislation within the next two years to deal with rights programs that face “huge problems.” Republican Senator Rick Scott has proposed subjecting nearly all federal spending programs to a renewal vote every five years. Analysts say that could make Social Security and Medicare more vulnerable to cuts.

The Federal Reserve: Lawmakers have increasingly spoken out against the pace of Federal Reserve interest rate hikes to fight inflation. Democratic Senators Elizabeth Warren, alongside Banking Chairman Sherrod Brown, John Hickenlooper and others called on Fed Chairman Jerome Powell to slow the pace of the hikes.

Now the Republicans are getting involved. Sen. Pat Toomey, the top Republican on the Banking Committee, last week called on Powell to resist buying government debt if market conditions remain weak. Expect more control from both parties after the election.

The stock market under President Biden started with a boom, but as we head into the midterm elections, the markets are crashing, reports my colleague Matt Egan.

On Monday, the S&P 500 fell 1.2% since Biden took office in January 2021. It was the second-worst performance in a president’s first 656 calendar days in office since the former president. Jimmy Carter, according to CFRA Research.

Of the 13 presidents since 1953, Biden ranks ninth in stock market performance up to this point in his term, trailing only former presidents George W. Bush (-32.8%), Carter (-8, 9%), Richard Nixon (-17.2%) and John F. Kennedy (-2.1%), according to the CFRA.

By contrast, Biden’s two immediate predecessors headed into their first midterm election with stock markets soaring. The S&P 500 climbed 52.2% during former President Barack Obama’s first 656 calendar days in office and 23.9% under former President Donald Trump, according to the CFRA.

U.S. consumers borrowed an additional $25 billion in September, according to recently released Federal Reserve data, as higher costs led to increased reliance on credit cards and other loans, my colleague Alicia Wallace reports.

In normal economic times, that would be a worrying jump, Matthew Schulz, chief credit analyst for LendingTree, said in a tweet. “However, this is actually the second lowest increase in the past year.” Economists were anticipating monthly growth of $30 billion, according to consensus estimates from Refinitiv.

The data is not adjusted for inflation, which is at decade highs and weighing heavily on Americans, outpacing wage gains and forcing consumers to rely more on credit cards and their savings.

In the second quarter of this year, credit card balances saw their largest year-over-year increases in more than two decades, according to separate data from the New York Federal Reserve. The third quarter household debt and credit report is due out on November 15.

Correction: A previous version of this article incorrectly listed the number of calendar days in the analysis as well as stock market performance under various US presidents during that time period.


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