Tension on election day: What the midterms mean for the stock market

The midterm elections in the United States have been on everyone's lips on the stock market for weeks. What do the midterms mean for the stock market? Actually, these midterm elections usually usher in a very good stock market phase. The prices usually rise above average in the following twelve months.

The midterms are followed by the third year in the American presidential cycle, which is usually a good year for the stock market. With a view to the next presidential election, the ruling party here is often trying to further stimulate the economy and hold back on unpopular tax increases and regulations.

This was also the case after the midterms in US President Donald Trump's first term in office. In the twelve months following the election in November 2018, in which the Democrats captured the House of Representatives, the market-wide S&P 500 index rose by almost twelve percent.

Concern about escalation in the Iran war

This time, however, there could be a few more stumbling blocks to this scenario than usual. Above all, there is concern on the markets that US President Trump is planning a major attack on Iran after the elections in order to try to find a military solution to the conflict - although Trump denies this. That would drive up oil prices again and exacerbate inflation concerns.

In the short term, there is a risk of a phase of political uncertainty, as it sometimes takes days until the majority in Congress is established. This time that could be particularly the case in the Senate, where the race is considered particularly close. Trump himself could cause additional uncertainty by once again doubting and challenging the election results.

Shift in power could put a strain on the tech industry

As far as the results of the election are concerned, the often observed weakening of the president is generally received positively on the markets. "A divided government could reduce the prospect of major policy changes and therefore policy uncertainty for financial markets," said Tim Murray, capital markets strategist at T. Rowe Price.

But at the same time, Murray warned that a shift in power toward more "progressive politicians" among Democrats who support wealth taxes and other redistributive measures could cause concern among investors.

If the Democrats take back the House of Representatives and possibly the Senate as expected, investors also fear that the technology industry may become more heavily regulated than before. That would be another blow to the Nasdaq technology exchange, which is currently wobbling. The same applies to the booming oil and energy sectors.

The consequences for the AI ​​boom at the individual state level are also being discussed. “We definitely see a risk for the expansion of AI infrastructure, especially in the form of data centers,” said US policy expert Libby Cantrill from US asset manager PIMCO. "Especially among the gubernatorial candidates, many are specifically campaigning against data centers and calling for a complete moratorium. It remains to be seen whether this will actually happen." Because of the high water and energy consumption, the industry's construction projects are controversial in many places.

DAX falls slightly behind