The medium-term elections in the US will take place on Tuesday. There are three ways in which elections can develop:
- The Democrats regain control of the House, while the Senate remains under Republican control.
- The GOP repels the so-called Blue Wave to retain the majority in both chambers.
- The Democrats receive a majority both in the House and in the Senate.
Various polls are expected to see Democrats take over the majority in parliament. If the Republicans manage to retain the majority in both chambers, this could lead to an increase in stocks in the short term as further tax cuts are expected. By contrast, a Democratic majority in both the House of Representatives and the Senate could weigh on the market, which could mean more investigation against Trump. A divided congress could help to dispel the current trade disputes with other countries.
"For the markets, the main focus is on whether further fiscal stimulus is expected and what impact this will have on trade policy," said Torsten Slok, international chief economist at Deutsche Bank Securities. "In the former, unified republican control is likely to be more bullish, while in the latter, the divided government could de-escalate the current trade conflict."
Historically, stocks are good after such competitions. According to The Stock Trader's Almanac, since 1934 the S & P 500 has gained an average of 2.7% between the five days before the election and three days later.