Here’s what the midterm elections could mean for the financial sector, energy, healthcare and more

By Victor Reklaitis

Analysts give predictions on what a divided Washington could deliver

A poll this month revealed record interest in the 2022 midterm elections, which are now less than two weeks away.

Analysts focused on key sectors are among those paying close attention to midterms, as Democrats are set to lose control of at least one chamber of Congress after spending two years leading both chambers as well as the White House.

Below are some predictions from these analysts on what a divided Washington could mean for the energy industry (XLE), financial sector (XLF), cannabis players (MSOS), healthcare (XLV ) and technology (XLK).

The Predictit betting market currently gives Republicans a 90% chance of winning the House and more than a two-in-three chance for the GOP to take control of the Senate

Republican campaigns seized on runaway inflation, including high gasoline and other fuel prices, while Democrats focused on issues such as abortion rights.

Financial sector: bank mergers, a stock market rally

Banks (KBE) have “only modest medium-term political exposure as President Biden has already confirmed with major financial regulators,” Cowen Washington Research Group analyst Jaret Seiberg said in a note on Wednesday.

However, there could still be some impact, such as a possible increase in mergers and acquisitions between regional banks (KRE).

“Republican oversight of the House should be positive for regional bank mergers. A GOP chair of House Financial Services will give Republicans the opportunity to provide policy cover for regulators to approve mergers,” Seiberg wrote.

Ed Mills, a political analyst in Washington for Raymond James, points out that his team’s research shows that since 1946, the S&P 500 stock index has consistently been higher 12 months after a midterm election.

“The most important thing for intermediaries and markets is that intermediaries happen,” he said.

“100% of the time, 12 months after the midterms, the S&P 500 is up – and most of that movement happens in a three to six month period after the midterms.”

Related: A strong market rally could be weeks away if the U.S. midterm election can put anxious stock investors at ease

And see: US stocks rise 15% on average a year after midterm, analysts say

Mills added that the Securities and Exchange Commission has an aggressive agenda and is funded by Congress, so the agency may see some restrictions on its activities with Republicans in power.

Read more: Republican lawmakers risk targeting ‘woke capitalism’ after midterm elections

Energy: national production, problems related to electric vehicles, etc.

“You’ll see Republicans in Congress pushing the administration to increase domestic energy production,” Mills also said.

But the Raymond James analyst stressed that he had doubts about the support the Biden administration would give to this push. President Joe Biden – who has repeatedly spoken about electric vehicles – could veto any legislation promoting fossil fuels.

From MarketWatch Archives (August 2021): The future of the auto industry ‘is electric, and there’s no turning back,’ says Biden, as he touts EV goal

The most important near-term question for the energy sector, according to Mills, is whether Democratic Sen. Joe Manchin’s permit package will be signed into law after it sank in September. The moderate West Virginia lawmaker aims to speed up permits for gas pipelines and other energy projects.

“But I think it’s more of a lame duck problem than an upcoming congressional problem,” Mills added. It’s a reference to the view that Manchin’s plan is most likely to come true during the period between midterms and the start of the 118th Congress in January.

According to Tobin Marcus, US political and political strategist at Evercore ISI, critical minerals (REMX) should attract attention. There is bipartisan interest in reducing U.S. dependence on China for these minerals, which are essential for electric vehicles and other clean energy industries.

“It’s a bit of a dark horse area for bipartisan cooperation that’s not incredibly on the radar yet,” Marcus told MarketWatch.

The Evercore analyst also said there could be action next year on North American battery supply requirements in the Democrats’ big climate, health and tax package, dubbed the Environmental Protection Act. reduction in inflation. The package included a revamped $7,500 tax credit for electric vehicles, but South Korean automaker Hyundai and other automakers opposed the credit’s supply requirements and would benefit from delays for those rules. It was even then that Hyundai again this week broke ground for a large plant in Georgia.

“It’s possible that we’re starting to see more bipartisan efforts to push back some of these deadlines,” Marcus said.

Related:Here’s how Democrats’ new electric vehicle tax credit that excludes Hyundai cars affects Georgia’s key Senate race

Health: Lots of headlines, a “juicy target”

Republicans will likely continue to criticize the Cut Inflation Act’s provisions aimed at lowering drug prices, arguing that they will lead to less innovation and fewer remedies coming to market, but Biden and his colleagues Democrats will have no interest in going back on these provisions, according to Marc.

“So I think that’s mostly the landscape in 2023 – with some headlines, but not a lot of real risk to the sector,” the Evercore analyst said, referring to the healthcare sector.

However, pharmacy benefit managers might run into problems. There could be bipartisan bills targeting mental health and other areas where there is agreement, and Republicans in particular will want to make sure the proposals are paid for, so there will be a search for ways to pay new health spending, Marcus said.

“PBMs will be a pretty juicy target in this research,” he told MarketWatch.

The Evercore analyst also said he was watching for bipartisan legislation during the lame session that would at least ease planned reductions in Medicare payments to doctors and labs.

Cannabis: The bank bill could be correct just before the new Congress gets to work

In early October, Biden asked his administration to review how marijuana is classified as a Schedule 1 controlled substance, a category that also includes heroin and LSD.

If his administration tries to move quickly on the deprogramming pot, Republican lawmakers will likely try to use legislative maneuvers to disrupt that effort, according to Mills, the Raymond James analyst.

Meanwhile, a bill that seeks to protect banks that work with the cannabis industry has a better chance of eventually passing the Senate during the lame session, Mills believes.

“If that doesn’t happen, I think that’s a net negative for cannabis,” he said.

From MarketWatch Records (April 2021): There’s No ‘Immediate Track’ in the Senate for Cannabis Banking Bill, Analyst Says

Seiberg, the Cowen analyst, said his team thinks Congress is likely to pass the measure, known as the SAFE Banking Act, during the lame session, but it’s “not guaranteed” and they only give it a 60% chance.

Related: Cannabis legalization rises for a November 8 vote in five states

Tech: censorship discussion, privacy progress

Republicans don’t seem ready to offer a “compromise for everyone that lets everyone say they’ve done something about Big Tech,” said Marcus, the Evercore analyst.

Instead, he sees the GOP focusing next year on issues like content moderation.

A “Pledge to America” ​​program that House Republicans rolled out in September ahead of the midterms appears to support that prediction. He promises that the GOP will “fight Big Tech censorship.”

Marcus added that there could be GOP support for data privacy legislation, given that it’s been a bipartisan issue before.

“It may be something that the executives are ready to tackle next year. I doubt it will be a blow to the industry in the same way that some of the antitrust stuff would have been,” a- he declared.

Related:As Congress wades into Big Tech regulation, the FTC doesn’t wait

And see: Hearing on data privacy bill reveals contours of last best hope for tech regulation

-Victor Reklaitis


(END) Dow Jones Newswire

10-28-22 0843ET

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