2022 Midterm market

US voters will be casting their votes on Tuesday the 8th of November, which will determine if the Democrats can hold their majority power or whether the republicans will regain seats. Regardless of the results in a normal market, the S&P500 tends to rise between 5-15% after these elections. Furthermore, the year after the midterms generally is bullish. But will markets be able to see similar gains this year or next?

This time perhaps not… with the US Federal Reserve hell-bent on lifting rates to beat inflation into submission, the backdrop for equities markets is very different to most other elections. The chance of another grim CPI reading come Thursday night in the US overshadows the normal positive sentiment that US markets usually see after a US election.

So how is this week likely to play out? Tuesday night the 8th at 6 pm EST voting is completed, and most states will start counting within a few hours after that. (This is Wednesday at 10 am Melbourne time). So, from 10am-12pm, we will start seeing commentary around counting begin.  How long it will take to call clear winners will be determined by how close the race is. The 2020 election took almost a full week to conclude. We suspect this time will be much quicker. Typically, we would expect to know late Wednesday local time or Thursday morning.

With the already questionable outlook with the current inflation issues, geopolitical issues with Russia Ukraine and potentially China any additional political unrest in the US could be met with another strong equity downturn.

On a more bullish note, it seems there is still an eagerness to buy this heavily sold-down market, with buyers strongly defending the 3,600 level on the SP500. This week is likely to be a trend decider between the Midterms and the CPI reading Thursday night.

Good luck and happy trading.