Investors are clamoring to know how the US midterms will affect their portfolios. But for all the hype whipped up around the elections by stock market pundits, there's not much substance. America's founding fathers designed the legislative system to be in gridlock more often than not, and that is the most likely outcome of this election. Fox and CNN don't take bets, but bookies like Ladbrokes do, and they have the odds of a Republican takeover of the House of Representatives at 90-95%. Similarly, PredictIt has the Republicans at a 90% chance to win the House. With a Democrat in the White House and Republicans in Congress, the most likely outcome is a whole lot of nothing for the next two years.
However, the hype train over midterms obscures the fact that less than 5% of S&P 500 (
SPY
) companies even mentioned the midterm elections on their Q3 earnings conference call. In 2020, the number of companies mentioning the election was 4-5x higher. While it's possible that some bipartisan efforts to deal with the national debt and entitlement funding problems are made, it's unlikely for now. Investors in healthcare stocks may want to monitor the rhetoric from both parties around the healthcare system. If it ever gets reformed, then Big Pharma and health insurance companies aren't going to be as profitable.
Half the TV ads for NFL games these days seem to be for fast food, and the other half is for pharmaceuticals. This is not a coincidence! But other than a small chance of a big change in the healthcare system and some smallish tax hikes to help reduce deficits, large amounts of change are unlikely with a split government in the next two years. A decent tax hike for 2023 is already coming, which is restarting payments for millions of student loan borrowers after over two years. This will actually do more to combat inflation that anything the Fed can do in the short run. And, of course, this is unless they extend the pause for another two years under the pretense of the "pandemic" to try to win elections in 2024. Dysfunction in DC shouldn't have a severe impact on corporate profits over the next two years, but if it does, you'll get plenty of warning. There is no need to make any portfolio moves before midterms.
The superficial focus on midterms belies two crucial truths - S&P 500 earnings estimates are collapsing for 2023 while the Fed's inflation-fighting job is far from done.
Midterms on Tuesday will grab all the headlines, but the US consumer price inflation report on Thursday will mean a lot more to your portfolio. There are a few attractive buys in today's market, but not that many when you're competing with earning 5% or more on cash next year for doing nothing.
For TODAY, as I mentioned before "There is no need to make any portfolio moves before midterms". Even for short-term swing trader, I will suggest to lighten the position to "lock in profits".
However, the hype train over midterms obscures the fact that less than 5% of S&P 500 (
SPY
) companies even mentioned the midterm elections on their Q3 earnings conference call. In 2020, the number of companies mentioning the election was 4-5x higher. While it's possible that some bipartisan efforts to deal with the national debt and entitlement funding problems are made, it's unlikely for now. Investors in healthcare stocks may want to monitor the rhetoric from both parties around the healthcare system. If it ever gets reformed, then Big Pharma and health insurance companies aren't going to be as profitable. Half the TV ads for NFL games these days seem to be for fast food, and the other half is for pharmaceuticals. This is not a coincidence! But other than a small chance of a big change in the healthcare system and some smallish tax hikes to help reduce deficits, large amounts of change are unlikely with a split government in the next two years. A decent tax hike for 2023 is already coming, which is restarting payments for millions of student loan borrowers after over two years. This will actually do more to combat inflation that anything the Fed can do in the short run. And, of course, this is unless they extend the pause for another two years under the pretense of the "pandemic" to try to win elections in 2024. Dysfunction in DC shouldn't have a severe impact on corporate profits over the next two years, but if it does, you'll get plenty of warning. There is no need to make any portfolio moves before midterms.
The superficial focus on midterms belies two crucial truths - S&P 500 earnings estimates are collapsing for 2023 while the Fed's inflation-fighting job is far from done.
Midterms on Tuesday will grab all the headlines, but the US consumer price inflation report on Thursday will mean a lot more to your portfolio. There are a few attractive buys in today's market, but not that many when you're competing with earning 5% or more on cash next year for doing nothing.
For TODAY, as I mentioned before "There is no need to make any portfolio moves before midterms". Even for short-term swing trader, I will suggest to lighten the position to "lock in profits".