U.S. Government Policy

Midterm Election Preview: What Investors Need to Know

October 17 2022

U.S. election season is upon us once again. 

Recent legislative wins appeared to give Democrats a bit of momentum heading into the midterms.

But history and economic worries suggest the odds favor Republicans winning a majority in at least the House. 

Let’s explore what the different outomes could mean for U.S. policy and investors. 

A Republican majority in the House would likely lead to congressional gridlock. In this scenario, both parties would struggle to push through legislation that’s outside the normal course of business. 

The stage could also be set for battles to extend the debt ceiling or fund the government. That could unsettle markets, especially if the economic backdrop is challenging. 

We would also expect more restraints on government spending. Defense, however, could be a possible exception.

House Republicans would likely step up oversight hearings and investigations of the Biden administration. The president could also face demands to be more hawkish toward China.

If Republicans were to take the House and the Senate, these pressures would increase. Biden’s ability to confirm new federal judges and agency heads would also be constrained. 

And if Democrats win a majority in the House and the Senate?

Extending the debt ceiling wouldn’t be a battle. And we could see a push to increase spending on social programs. Adjustments to tax policy could also be in the offing.

No matter how the election turns out, investors should pay close attention to what the federal agencies are doing.

The Secruties and Exchange Commission is likely to be active in rule-making.

New disclosure requirements related to climate change are coming down the pike. Greater oversight of cryptocurrencies could also be a priority. 

What about big tech? 

The Federal Trade Commission is working on data privacy rules. We believe their impact on large tech companies should be manageable. We could see antitrust lawsuits regarding some of big tech’s business activities. However, these cases would take a significant amount of time to reach a decision. The outcomes are also far from clear-cut.

In health care, the administration may seek to expand access to insurance via the exchanges set up under the Affordable Care Act. That could boost demand for health care products and services. Some managed care companies could also benefit.

A lot can change in the runup to Election Day. We’ll run down everything that investors need to know after the results are final.

Key Insights

  • Midterm elections could shift the balance of power in Congress, limiting the Biden administration’s ability to pursue its agenda through legislation.
  • In a divided government, battles over extending the debt ceiling could roil the market, especially if the economic backdrop remains challenging.
  • Regardless of the election’s outcome, federal agencies will be an important tool for Biden to advance his policy priorities.

Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of October 2022 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy. Actual future outcomes may differ materially from any forward-looking statements made.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

T. Rowe Price Investment Services, Inc.

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