Midterm Elections Could Boost Or Hinder Energy, Tech Stocks

Mark Mattson's message to investors ahead of the midterms. "No panic."

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As Americans prepare for Tuesday's midterm elections to decide which party will control Congress, investors are expecting the next round to have a significant impact on the stock market.

Polls show a strong Republican lead in Congress and deadlocks in many Senate elections, leading some traders to brace for a GOP victory. Otherwise, the political stalemate caused by a divided government is also generally viewed as favorable for investors who wish to keep their actions unaffected by major political movements.

With the S&P 500 down nearly 21% over the past year, investors appear to be betting on a Republican victory. A basket of stocks and other assets controlled by consulting firm Strategas, which should do well after a Republican victory, outperformed a portfolio of similar Democrats, indicating a roughly 70% chance that Republicans will win both the House and the Senate will win.

Defense spending is expected to rise regardless of which party comes to power, signaling a positive future for shareholders. Experts say defense companies like Lockheed Martin (LMT.N) or Raytheon Technologies (RTX.N) are likely to benefit greatly from a Republican victory, as opposed to modest gains under a Democratic majority.

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© Michael Nagle/Bloomberg via Getty Images Investors are watching the results of Tuesday's midterm elections. The results could have a major impact on the stock market. Getty Images:

Pharmaceutical and biotech stocks should also benefit from the Republican win given recent Democratic legislation to cut prescription drug prices. While the S&P 500 Pharmaceuticals Index (.SPLRCARG) was up about 1%, the S&P 500 Healthcare Index (.SPXHC) was down about 7%.

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Energy stocks have had a great year as the energy sector of the S&P 500 (.SPNY) is up more than 60% in 2022. While Republicans control both the House and Senate, policies to encourage domestic energy production could be good for oil. Exploration Shareholders. and pipeline companies.

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© SAUL LOEB / AFP via Getty Images President Biden speaks to the media before boarding Air Force One at Marine Corps Air Station Miramar on November 4, 2022 in San Diego, California. Getty Images:

On the other hand, clean energy stocks will do well if the Democrats pull off a surprise victory. While the Invesco Solar ETF ( TAN.P ) fell about 6%, legislation promoting solar energy and other alternatives will boost the clean energy sector.

Hemp stocks are also likely to benefit from a Democratic win, having historically been in the headlines for regulators. The AdvisorShares Pure US Cannabis ETF ( MSOS.P ) is down more than 55% this year.

© Courtney Crowe/New York Stock Exchange via AP The S&P 500 is down nearly 21% over the past year, even as the energy sector S&P 500 (.SPNY) is up more than 60%. AP images

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It's unclear how big tech stocks will benefit from the mid-election results. Citi analysts predict the Republican majority will result in a "legislative impasse, implying further positive implications for the category." The Nasdaq 100 (.NDX), which is heavily biased toward technology stocks, is down about 33% in 2022.

Reuters contributed to this report.

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