November 2022 / INVESTMENT INSIGHTS
Key Issues for Congress Unchanged, Despite Election Uncertainty
Investors should focus on fundamentals, not politics.
Key Insights
- The balance of power in the U.S. Congress is uncertain at this juncture, but the majorities in its two chambers should be tighter than many expected.
- For investors, fiscal policy and the dynamics around extending the debt ceiling are key issues that are likely to be shaped by midterm election results.
- We believe investment decisions should be based on a longer view, not near‑term political outcomes.
The morning after the U.S. general election brought a bit more clarity on the possible balance of power in Congress but little in the way of resolution. Many contests were too close to call, while the Senate race in Georgia, as in 2020, is headed for a runoff. However the election shakes out, the majority margins in the Senate and House of Representatives will be tighter than expected.
We are monitoring the vote tallies closely, and once the possible outcome becomes clearer, we will share a more detailed analysis of the potential implications for markets, the economy, and individual industries.
Until then, here is a quick review of the key issues in play for investors, with the caveat that we believe investment decisions should be based on a longer view that focuses on economic and business fundamentals, not near‑term political outcomes.
Fiscal Policy and the Debt Ceiling Are Key Issues
The balance of power in Congress will shape fiscal policy in ways that could have important implications for investors. “Even the narrowest of Republican majorities in the House would likely take tax increases and fiscal stimulus off the table,” notes Michael Pinkerton, a T. Rowe Price associate analyst who covers U.S. government legislation and regulation. Congress’s willingness to support the economy via fiscal spending could be especially important if the U.S. were to sink into a mild or severe recession, observes T. Rowe Price U.S. Economist Blerina Uruci.
Midterm election results would also shape the dynamics of raising the debt ceiling—a necessity for the U.S. Treasury to be able to issue debt to fund the federal government. A Republican majority in the House could make this process difficult by seeking to exact spending‑related concessions. Brinkmanship on this critical vote could roil equity and fixed income markets in 2023.
Developments on Regulatory Front Also Bear Watching
Regardless of the election outcome, developments on the regulatory front could affect certain industries to varying degrees.
Several federal agencies will be focused on implementing the terms of the CHIPS and Science Act and the Inflation Reduction Act. The details of these regulations could have implications for chipmakers, the electric vehicle industry, and pharmaceutical companies.
Mr. Pinkerton says he is also monitoring new rule‑making that could result in additional disclosure requirements for public companies as well as regulations that could affect consumer finance companies and Big Tech.
Parting Perspective for Investors
Narratives highlighting correlations between election outcomes and market performance often circulate in the runup to the midterms and their immediate aftermath, but investors should bear in mind that past performance does not guarantee future results.
Market performance next year could be unpredictable, according to Eric Veiel, T. Rowe Price head of Global Equity and chief investment officer. “The Fed is aggressively raising interest rates and driving monetary tightening into slowing economic data,” notes Mr. Veiel. “This is a rare occurrence through history and one that has contributed to the recent pullback in stocks and other risk assets. Until the markets see clarity on the Fed’s path for interest rates, volatility is likely to last.”
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This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
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Michael Pinkerton is an associate investment analyst covering legislative and regulatory research, primarily focused on domestic public policy, in the U.S. Equity Division.
Blerina Uruçi is the chief U.S. economist in the Fixed Income Division. She contributes to the formulation of investment strategy and supports investment and client development activities throughout T. Rowe Price, specifically focusing on the outlook for the U.S. economy, inflation, and monetary policy. Blerina is a vice president of T. Rowe Price Associates, Inc. Blerina's investment experience began in 2007, and she has been with T. Rowe Price since 2022, beginning in the Fixed Income Division. Prior to this, Blerina was employed by Barclays Capital as a senior U.S. economist. Before that, she was a European economist with Barclays in its London office, where she was accountable for the UK market. Blerina earned a B.Sc., first-class honors, in economics and politics from the University of Bath and an M.Sc. in economics from the London School of Economics and Political Science.
Eric Veiel is head of Global Equity and chief investment officer. He is chair of the Investment Management Steering Committee and a member of the Management Committee, the Equity Steering Committee, the International Steering Committee, the Multi-Asset Steering Committee, the Product Steering Committee, and the Management Compensation and Development Committee.
