Home / Markets / Stock Markets /  How US midterm elections results could impact markets

Disappointment for the GOP: Preliminary results show that the expected 'red wave' did not materialize - Republicans have done quite poorly, even though they are still likely to win the majority in the House. The Senate looks likely to be decided by a runoff for the Georgia seat in December - and the Dems may even keep their majority before that, if tight races in Nevada and Arizona go their way.

Good for markets? Overall, a divided government is good for businesses, since the Biden administration will not be able to pass legislation for higher taxes on corporations. Public spending will also probably be lower for the same reason - thereby reducing inflation potentially, and is therefore marginally positive for equities.

Expect chaos in Congress: With a majority in the House, Republicans are likely to use the debt ceiling and thus the threat of a government shutdown (as they did in 2011) to extract spending concessions and tax breaks for the wealthy - although a narrow majority reduces the likelihood of them being too obstructionist.

Further implications: This is the best performance by the sitting President's party in the midterms since 2002, largely due to abortion rights, and the threat of continued election denial by Republicans. The poor GOP performance also puts Donald Trump in the spotlight, as he is likely to announce a third consecutive presidential bid as soon as next week - but many of his hand-picked candidates lost heavily, and Florida's Ron DeSantis has emerged as a credible challenger for the Republican nomination.

Madhavi Arora is Lead Economist, Emkay Global Financial Services

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