U.S Midterms Two Weeks Away; Stock Market Highly Sensitive

Implications of U.S. Midterm Elections on the Stock Market

As the U.S. midterm elections draw near, the stock market is closely watched by experts owing to its sensitivity towards macroeconomic indicators such as the Middle East, pricing, and base interest rates. Typically, the stock market tends to climb post-election due to the resolution of uncertainty. However, the 2018 midterm elections were an anomaly as uncertainties like the U.S-China trade war, interest rate hikes, and federal shutdowns led to a continuous fall in the market.

The current election forecasting model suggests a likely win for the Democrats in the House of Representatives, spurring heated debates regarding the Senate. Prospects of “division of the House and Senate” were high until recently, with Republicans predicted to take over the Senate and Democrats poised to control the House of Representatives. However, recent trends indicate a rising probability of a Democratic win in the Senate.

Impact on AI and Big Tech

Market observers speculate that if the Democratic Party of Korea gains control of both houses, the artificial intelligence (AI) speed control theory may rapidly materialize. This is due to significant Democratic candidates opposing the swift expansion of AI data centers and advocating various regulatory measures. If the Democrats win, they are likely to aggressively advocate for a bill that requires Big Tech, which operates data centers, to share power costs. With the surge in data centers intensifying the burden of raising electricity bills on average households, the “Electricity Payer Protection Act (RPA)” has been proposed by Republicans to share electricity costs. However, it has been stalled in the Senate due to opposition from Democrats.

In contrast, domestic power device-related stocks could benefit from infrastructure bottlenecks as the demand for ultra-high-voltage power facilities is expected to rise sharply with big tech companies building their own substations and independent power grids.

Impacts on Healthcare, Bio Sectors, and Eco-friendly Energy Stocks

The healthcare and bio sectors could also be impacted, with the Democratic Party of Korea expected to expand medical expenses coverage. In the event of a Democratic win in the Senate, efforts to revive the Obamacare (ACA) tax credit, which ended late last year, are likely to be pursued again. The Democratic Party is expected to withdraw or reduce Medicaid fiscal cuts when it gains control of both Houses.

Furthermore, eco-friendly energy stocks might gain momentum as new and renewable energy investment tax credit (ITC) and production tax credit (PTC) subsidies based on the Inflation Reduction Act (IRA) are expected to be seriously considered.

Republican Victory Implications

If the Republican Party wins the Senate and the Democratic Party secures the House of Representatives, policies regarding energy security and power grid infrastructure, which are widely supported, will likely continue. In this scenario, Masuga (MASGA, Korea-U.S. Shipbuilding Cooperation) beneficiaries and ESS-related stocks could gain momentum.

If the Republicans secure a majority in both houses, the Trump administration’s major policy drive is expected to gain pace. The energy sector could witness regulatory relaxation on nuclear power plants, including reform of the Nuclear Regulatory Commission (NRC), which is currently being pursued. In this circumstance, stocks related to nuclear power generation facilities and small module nuclear power plants (SMR) could gain momentum.

Researcher Hwang Hae from LS Securities anticipates that, “Even if the Democratic Party returns to Congress, it is expected to change its direction in a situation where continuity is maintained rather than a policy reset. In the wake of the midterm elections, attention is focused on infrastructure bottlenecks such as political and social debates surrounding data centers, and there is a possibility that supply and demand will shift from AI-led stocks such as semiconductors to construction and power infrastructure value chains.”