US Mid-Term Elections and the effect on Markets

date 13  November,  2022
time 2 mins read

Indian Markets have been on a buying spree for the last few weeks thanks to some of encouraging data from the domestic and the international front. US markets have shown a significant bounce from the lower levels after the economic indicators started to show some bottoming out process with inflation making peaks and the other negative factors making bottoms.

The United States and its equity markets have been in center stage for the last few months where various developments have kept the investors on the edge. Federal Reserve which is the central bank of the United States has increased the rates for the third consecutive time. The rising inflation and slower growth have been the major factor behind such increases in the rates.

The US had its mid-term elections in the current month and triggered a fresh round of volatility in the global equity markets. A tough fight is witnessed between the democratic and the Republicans for the senate. Democrats appeared to have spooked off a Republican so-called “red wave” as the dust settled from the midterm elections, but overall control of Congress remains unresolved, with the GOP still within striking distance of taking the House and the battle for the Senate coming down to a handful of remaining races.

Many pollsters had predicted a “red wave” of Republican victories before Tuesday’s vote, but early results showed Democrats performing better than expected with control of Congress still hanging in the balance. A divided government is often seen as positive for US stock markets, as gridlock between Congress and the White House reduces the likelihood of passing disruptive new regulations or tax increases.

However, a relief rally could be in the offing for investors, if historical trends are anything to go refer to in the past years. Since 1950, the average return for the S&P 500 in the 12 months after a midterm election has been 15%, suggests a Bloomberg report, with no down years. Despite the short-term effect of the midterms, however, most investors believe this week’s inflation data will have a bigger bearing on the markets’ longer-term trajectory.

As far as the markets are concerned, we expect the Indian markets to remain in the bullish trajectory as the major focus right now is on the inflation measures and the global interest rate hikes which are not far related to the US elections at the current juncture.

Long-term investors may keep a close eye on the above-mentioned events and add on to their portfolios every correction. Indian markets will be under the grip of extreme volatility amid global market volatility, rising inflation news and the rupee and crude oil price fluctuations but the overall sentiments on the street are expected to be optimistic in the near-term period. Short-term traders may keep their existing positions hedged to save themselves from global volatility.

For retail or an individual investor, the equity markets are expected to remain volatile but the undertone may remain positive as major of the negative sentiments have already been factored in. Investors may start accumulating the stocks which are available at the good correction and are backed by solid fundamentals and earnings growth. On the other hand, new investors may opt for the route of SIP or mutual funds and start riding the investment journey.