The Stock Market Nears Election Night with Intense Scrutiny Over Specific Congressional Contests
On election night, while Vice President Kamala Harris and former President Donald Trump will grab most of the headlines, the stock market will also keep a close eye on several congressional races. Whilst the presidency is crucial, who takes the White House isn't the sole factor that matters to investors. The president depends on Congress to pass legislation and Congress can override vetoes. Additionally, the composition of Congress historically demonstrates some correlation to market returns. The following key congressional races are attracting interest from the broader stock market.
Focus on the House
Predictions and polling leading up to election night don't always pan out correctly, so both parties could still win the U.S. House of Representatives and the Senate. Nevertheless, the Republicans are currently favored to win the Senate (according to FiveThirtyEight as of Oct. 28), striking victory in 88% of simulations. On the other hand, the House seems to be up for grabs, with Republicans winning control 52% of the time, according to FiveThirtyEight - making it a close contest. The non-partisan Cook Political Report highlights 25 House races considered toss-ups, presenting equal opportunities for either party. Below, you'll find the contested seats and incumbent names. Noticeable omissions include those not seeking re-election:
Democrats Seeking Re-election
- Mary Peltola (AK-AL)
- Yadira Caraveo (CO-08)
- Jared Golden (ME-02)
- Elissa Slotkin (MI-07)
- Dan Kildee (MI-08)
- Don Davis (NC-01)
- Gabe Vasquez (NM-02)
- Susan Wild (PA-07)
- Matt Cartwright (PA-08)
- Abigail Spanberger (VA-07)
- Marie Gluesenkamp Perez (WA-03)
Republicans Seeking Re-election
- David Schweikert (AZ-01)
- Juan Ciscomani (AZ-06)
- John Duarte (CA-13)
- David Valadao (CA-22)
- Mike Garcia (CA-27)
- Ken Calvert (CA-41)
- Michelle Steel (CA-45)
- Mariannette Miller-Meeks (IA-01)
- Zach Nunn (IA-03)
- Don Bacon (NE-02)
- Anthony D'Esposito (NY-04)
- Marcus Molinaro (NY-19)
- Lori Chavez-DeRemer (OR-05)
- Scott Perry (PA-10)
New York serves as a crucial battleground state, as candidates from both major parties have a reasonable shot at victory. The Democrats have a chance to win two Republican-held seats in New York. Meanwhile, both parties will be on defense due to other New York races that are leaning in their favor but not entirely guaranteed, according to the Cook Political Report. Notable toss-up races in the House can also be found in California, Arizona, Iowa, Pennsylvania, and Michigan.
What Are Investors Looking For?
Everyone holds diverse preferences when it comes to election night outcomes, with various aspects weighing heavily when casting their votes. Many voters may consider the economy the most critical election issue and vote for the candidate they believe will contribute profitably to it. Conversely, others might not consider the economy as a deciding factor, instead focusing on other subjects.
Historical data indicates better market performance when Congress is split, with the House dominated by one party and the Senate by another. This would be ideal for investors solely focused on market returns, as such a situation has resulted in S&P 500 average annual returns of 17%, significantly higher than the benchmark index's average annual returns, according to one study.
Subsequently, if you agree with pollsters that the Senate will fall into Republican control, investors will pay close attention to the above-mentioned races to see if the Democrats can secure victory and maintain control of the House.
Voting for a scenario that fosters political gridlock may appear challenging due to the widespread desire for change. Today, Congress is evidently passing fewer laws than in previous sessions. Nevertheless, analysts from LPL Financial suggest that investors might actually prefer gridlock because it minimizes the likelihood of sweeping changes impacting individual sectors. Moreover, the current corporate tax rate of 21% is at a reasonable level, and investors will not be eager to see it rise.
Of course, diverse investor preferences may depend on their individual investing strategies, but generally speaking, the S&P 500 performs best under gridlock.
Investors are closely watching the House races, as the non-partisan Cook Political Report highlights 25 toss-up races with equal opportunities for either party. These results could determine whether the Republicans or Democrats control the House, which historically has demonstrated some correlation with market returns. Moreover, if pollsters predict that the Senate will fall into Republican control, investors will pay close attention to the House races to see if the Democrats can secure victory and maintain control, as this scenario has resulted in higher S&P 500 average annual returns according to certain studies.
