Within the next few days we should receive the results of the elections for the House of Representatives and the changes in 35 of the 100 seats in the Senate. So far, the current Democratic majority seems to have given a lot of leeway to incumbent President Biden. Therefore, what changes in voting strength can we expect, and how might these changes affect financial markets?
The course of the results
Recall the scope of powers of the two chambers in the US system. The House of Representatives (a.k.a. the Lower House), consisting of 435 representatives, is tasked with, among other things, passing federal legislation (laws), initiating all legislation, and electing the President of the United States. The Senate (Upper House) is tasked with providing advice and consent under the U.S. Constitution. Therefore, the Senate could , for example, block laws and give its interpretations of the Constitution. So far, it seems that at the moment of legislative and executive concurrence, this has given the President and the Diet freedom to make policy, but in the event of a difference of opinion between these institutions, it seems that we could see restrictions on action.
At the moment we can see an advantage in the House of Representatives in favor of the Republicans (currently 199 seats to 172 for the Democrats), and in the vote for the Senate we have almost equal results (Democrats 46, Republicans 47). In the event of a Republican win in both chambers, the Democrats would lose their majority, which could lead to the separation of powers of Joe Biden's government.
What may seem interesting is, according to NBC News exit poll data, when asked, "Which issue mattered most in deciding how you voted today?" respondents most often marked abortion (45 percent), followed by inflation (29 percent). This may give additional insight into the problems of the average American, and put pressure on the current government especially on inflation.
Silence before the storm?
We may see reduced volatility in the markets today. The S&P 500 Index (US500), after last week's seemingly extremely negative news from the Fed chairman about continued interest rate hikes, fell more than 3 percent before recovering to around 3800 points.
It seems that a potential win by the Democrats would deepen efforts to fight inflation through government programs and raising interest rates. This could have a negative impact on markets. Regardless of the election results, however, volatility in major markets could increase.
Source: MT5, US500, Weekly
Author: Grzegorz Dróżdż, a Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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