US mid-terms to bring no meaningful legislation for two years

Oksana Patron

15 November 2022

The markets should expect no meaningful legislation over the next two years as a result of the US mid-term elections which are likely to avoid the “red tide” but will see no clear winner, according to Amundi Asset Management’s Institute.

Also, markets’ responses to the elections were subdued due to their expectation that a Republican majority would have led to a divided government.

So, what does it mean for investors?

According to Amundi, financial markets would prefer a divided government which would make some policies, including higher taxes and more regulation, unlikely.

Traditionally, the House Republicans would seek higher spending on defence and border security, push for businesses tax breaks and energy infrastructure bill.

As far as foreign policy is concerned, this could mean a tougher stance on China leading to increased export controls, especially in the technology sector while the current administration was combining the security concerns with a more protectionist agenda as well as focusing on the domestic industry in climate change and technology.

Additionally, the main issue at stake between the US and the European Union would be the American support to Ukraine.

“It is likely that, if Washington keeps supporting Kyiv, the war could last for longer and escalate further, as there would be little to no incentive to seek talks. However, if the Republicans will question and disapprove the amount spent on military aid, leading to a decrease of the amounts of money and armaments provided, a ceasefire between Russia and Ukraine in the second half of 2023 becomes more likely,” the Amundi Institute said in a note.

“Historically speaking, US mid-term elections have always been negative for the party supporting the sitting President. Only Bill Clinton and George W. Bush have been the two notable exceptions to the rule since the end of WWII, witnessing an increase of their majorities in the House of Representatives.”