Here's What's At Stake For Your Investments In The 2018 Midterms

Each American voter has Congressional seats, local government positions and ballot propositions to consider Tuesday. For investors looking at the big picture of the midterm elections, Height Capital Markets broke down the key races for investors to watch when the vote tallies start streaming in Tuesday evening.

The Races

There are 10 key Senate races and 67 key House races that could turn the tide for investors on Tuesday, according to Height's Stephanie Miller.

“We continue to put odds at 55% that Democrats win majority of the House and Republicans maintain majority of the Senate in tomorrow's Midterm elections, the outcome viewed as most-likely by investors,” Miller wrote in a post. “We maintain our 30% odds of a next-most likely scenario, that Republicans keep majorities in both chambers, with only 15% chances of a Democratic sweep.”

Miller said Democrats should easily gain at least 14 House seats no matter what, but they will need to gain 23 net seats to reach the critical majority. Miller said the best-case scenario for Democrats in the House is a gain of about 33 seats.

In the Senate, Miller predicts a net gain of one or two seats for Republicans. Height forecasts Republican Senate wins in North Dakota and Missouri, flipping those two seats from blue to red. In addition, the firm is calling for Nevada’s Senate seat to flip from red to blue.

Miller said close races for Democrat-held seats in Indiana, West Virginia and Montana will likely stay blue, while the Republican seat in Mississippi will likely stay red after a November 27 run-off. Miller says the Democratic Senate seat in Florida is too close to call.

See Also: Midterms And The Stock Market: Potential Winners, Losers From The Coming Election

The Issues

The balance of power in Congress is critical for investors due to several key issues that could be in play over the next two years. President Trump is getting little resistance from a Republican Congress to his trade war with China, policy that could derail U.S. earnings growth in 2019. U.S. tariffs on $200 billion of Chinese goods are set to rise to 25 percent starting on Jan. 1, 2019.

Trump has also pressured the Federal Reserve to ease off of its interest rate hiking schedule, and Republicans are planning another round of tax cuts if they regain control of Congress. The trade war and rising interest rates have impacted auto stocks, making automobiles more expensive for car buyers and more difficult for them to get auto loans.

For health care investors, potential Medicaid expansion and the fate of the Affordable Care Act is up in the air. A Democratic victory could pressure energy stocks as well and bring climate change and environmental regulation back into play in Washington. Many Democrats want to restore Net Neutrality, which could be bad news for tech stocks.

The Stocks

The good news for investors is that stock prices have historically soared following midterm elections. Since 1946, the S&P 500 has averaged a 30-percent gain from its midterm election year lows to its 52-week high in the year following the election.

In a divided Congress scenario, Height said a number of stocks are positioned to benefit from potential policy changes, including the following:

  • NRG Energy Inc NRG
  • Southern Co SO
  • Federal National Mortgage Association FNMA
  • Centene Corp CNC
  • Vulcan Materials Company VMC
  • Netflix, Inc. NFLX
  • Altria Group Inc MO
  • Canopy Growth Corp CGC

At the same time, Height said a split Congress would also create the possibility of negative policy changes for the following stocks:

  • Bunge Ltd BG
  • Energy Transfer Equity LP Unit ETE
  • JPMorgan Chase & Co. JPM
  • Enova International Inc ENVA
  • Pfizer Inc. PFE
  • Casey’s General Stores Inc CASY
  • Facebook, Inc. FB
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