Stock market braces for expectations and concerns after US midterm elections

The stock market is bracing for the US midterm elections. Will the removal of political uncertainty provide a tailwind for stock prices, or will the turmoil deepen? As the upward trend in the Nikkei Stock Average, which had been driven by stocks related to artificial intelligence (AI), is starting to show signs of slowing, investors' expectations and concerns are mixed about how the market will develop after the election.

"Stock prices are likely to rise after the U.S. midterm elections." This ``rule of thumb'' is known among market participants. Regardless of the election results, once the political system is solidified, it becomes easier to predict the feasibility of policies, which softens investor sentiment. Makoto Hattori, Head of Equity at Marusan Securities, also believes that after the election, uncertainty will be resolved and stock prices will likely rise. Regarding AI, he said, ``If the Democratic Party has the upper hand, regulations may be tightened, but development will not stop as the United States and China compete for supremacy.''

If the Democratic Party gains control of both houses of Congress, it will be difficult for President Trump to come up with policies that involve fiscal spending that must be approved by Congress, said Shuji Hosoi, senior strategist at Daiwa Securities. He predicts that stock prices will be better off if the Democratic Party holds a majority in the House of Representatives, saying, ``The Trump administration will become a lame duck, making it difficult to advance policy.''

On the other hand, if the Republicans lose, some are concerned about Trump's behavior. Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, warns of a headwind to the market, saying, ``The United States will become more hawkish in an effort to demonstrate to the world that it is a strong United States, making it difficult to see an agreement to end the war with Iran.''

Ryotaro Sawada, senior analyst at Tokai Tokyo Intelligence Lab, also pointed out, ``There is a smoldering sense of uncertainty about the president's words and actions after the election.'' They are nervous that if Mr. Trump takes unexpected action, ``there is a possibility that we will start selling all at once.''