Strategy

UPDATE: Who Will Control the House and the Senate?

U.S Midterm Elections – What will a gridlock mean for my investments?

Nov. 17, 2022
Republican vs. Democrat

Current 2022 U.S Midterm Election Results

The Democrats have gained control of the senate by reaching 50 seats (when we include the 2 independents who support the Democrats). Georgia is set to go to a runoff in December however, even if the Republicans win, a 50-50 split means the Senate would effectively be controlled by the Democrats since the tying vote falls to the Vice President, Kamala Harris. The Republicans are won the house by reaching a 218 majority which results in a split congress gridlock. A gridlock will reduce the number of bills passed by the Senate, even if there may be a packed legislative agenda.

The Senate

The Senate seat breakdown

The House

The House seat breakdown


Source: The Associated Press November 17th2022.

Republican vs. Democrat


How does this affect investments?

A gridlock can be good for the markets in that the uncertainties of bills being passed comes to a standstill and in most scenarios, the markets tend to favour certainty over uncertainty. Midterms can also provide a course correction from presidential elections as markets may anticipate better policy balance ahead.

Furthermore, historically after a mid term election the S&P 500 Index has always had a positive return 1 year after a midterm election no matter who has been in the office dating back to the 1950s, which can make a strong case for investing in the broad market BMO S&P 500 Index ETF (Ticker: ZSP).

STOCKS HAVE ALWAYS GAINED A YEAR AFTER MIDTERMS (NO MATTER WHO’s IN OFFICE)

S&P 500 Index Returns 1-Year After Midterm Elections (1950s to Current)

STOCKS HAVE ALWAYS GAINED A YEAR AFTER MIDTERMS (NO MATTER WHO’s IN OFFICE) S&P 500 Index Returns 1-Year After Midterm Elections (1950s to Current)


Source: LPL Research FactSet 11/04/22 Past Performance is no guarantee of future results. The modern design of the S&P 500 Index was first launched in 1957. Performance back to 1950 incorporates the performance of its predecessor index, the S&P 900.

Expectations Going Forward

Scenario

Policy Changes?

Sectors that will likely benefit?

Sectors that likely won’t benefit?

2024 Election Implications

Republican House, Democrat Senate

Split-Congress gridlock; Democrat agenda only through executive action

Fossil Fuels, Financials, Aerospace & defence, Tech, Healthcare, Infrastructure

Green Energy, Chinese Assets

Higher odds of Split Congress/​Democrat sweep in 2024


Sector Product Roadmap

Scenario

Asset

ETF

Ticker

Management Fee

Republican House, Democrat Senate

Financials

BMO Equal Weight US Banks Index ETF

ZBK

0.35%

Energy

BMO Equal Weight Oil & Gas Index ETF

ZEO

0.55%

Technology

BMO Covered Call Technology ETF

ZWT

0.65%

Health Care

BMO Equal Weight US Health Care Hedged to CAD Index ETF

ZUH

0.35%

Infrastructure

BMO Global Infrastructure Index ETF

ZGI

0.55%



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