US midterm elections take place today, with Republicans expected to win one or both houses of Congress. Political gridlock has historically suited markets, but there are fears this time could be different.
Markets were rattled in 2011 when Republicans played hardball in relation to raising the debt ceiling. A repeat performance, investors fear, could have serious market consequences.
Accordingly, it might be better if the Republicans won the Senate as well as the House of Representatives, suggests BCA Research. Winning the House alone would allow them to be obstructionist, but if they also controlled the Senate then they “cannot trigger a national default without taking all the blame for themselves”.
Political machinations aside, it’s notable that stocks have performed better in the six months after the midterms than the six months before, in 17 of the last 19 elections. Embattled investors will be hoping, then, that stocks follow the historical script.