US midterm election scenarios and implications for financial markets

House Minority Leader
Nancy Pelosi.
Jamie McCarthy/Getty
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• The midterm elections are less than two months away.
• In a detailed note to clients, UBS laid out the market
  implications of four outcomes for both chambers of Congress:
  Republicans maintaining their majority, Republicans expanding
  their advantage, Democrats gaining more seats, and Democrats
  flipping both chambers.

The
midterm elections will be here before we know it.

On November 6, Americans are set to decide which senators and
representatives will fill a combined 470 seats being contested in
Congress.

Republicans, and President Donald
Trump, are hoping to maintain their majority in both the
House and the Senate. The strong economy — now in its
second-longest expansion in history — helps them make a case for
continuity to voters.

But
history is not on their side, as a president’s party rarely
holds on to congressional majorities in midterm elections.
Democrats in turn are hoping that a progressive and anti-Trump
agenda will flip 24 Republican seats in the House and two in the
Senate — a so-called blue tsunami.

“Markets and the economy have — for the most part — thrived over
the past two years under a unified Republican government,” Mike
Ryan, the chief investment officer at UBS, said in a note on
Tuesday. His team at UBS is well aware that a single party’s hold
on political power doesn’t by itself determine what happens in
financial markets.

But ballot outcomes do matter, even if only in the short term.
…

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