Investors Looking to Boost US Stock Market after Mid-Term Election Uncertainty is Lifted

The Democrats will have continued control of the Senate, according to projections from several major news services including Fox News and CNN.

Both are reporting that the Democrats will maintain power in the Senate thanks to Democratic Senator Catherine Cortez Mastro being declared the winner in Nevada on Saturday night in her race against Republican challenger Adam Laxalt.

Democrats now hold 50 seats compared to the 49 seats held by Republicans with one seat yet to be decided in Georgia where a runoff election will be held between Republican Hershel Walker and Democratic Senator Raphael Warnock on December 6, Fox News reported.

Even if Walker were to win in Georgia, Democrats would still have control with Vice President Kamala Harris’s tie-breaking vote, Fox News wrote.

House of Representatives Still Up for Grabs

Republicans are still hoping to take back control of the House of Representatives and appear on track to do so needing to win 7 races out of the two dozen congressional races across the country are still outstanding.

The latest reports show that the Republicans have secured 211 seats of the House’s 435 members – just shy of a 218-member majority.

Early Stock Market Impact

The price action early last week was a clear demonstration of the kind of effect the mid-term elections could have on the stock market should investors choose to use them as a short-term indicator. However, as a short-term indicator, it would be quickly replaced by other fundamental events that have an even greater impact on stocks in the short-run.

That being said, it’s best to avoid relying on mid-term elections for your short-term decisions, and instead consider them for your long-term strategies.

The volatility in the stock markets early in the week confirmed investors don’t like uncertainty. When there is uncertainty, investors tend to sell. We saw that the day after last week’s mid-term elections, with so many races in both the Senate and the House undecided the first day.

The blue chip Dow Jones Industrial Average and the heavily-tech weighted NASDAQ Composite fell sharply, while the benchmark S&P 500 Index dropped 1.2 percent.

Short-Term Bears Burned by Bullish Consumer Inflation Data

Short-term investors who panicked and trimmed positions when the results were still uncertain last Wednesday, were burned on Thursday, following the release of the bullish U.S. consumer price index (CPI) report. U.S. stocks rose sharply on the news forcing those who reacted negatively to the mid-term election uncertainty to chase prices higher.

It’s only one event, but it serves enough purpose to demonstrate that investors are more keen to react to short-term indicators like consumer inflation that have a greater impact on monetary policy and essentially the health of the economy than mid-term elections that tend to have a greater impact over the long-term.

It may also indicate that the effects of a midterm or Presidential election tend to smooth out over the long-run so their impacts aren’t felt that much as volatility gets capped.

Democrats Victory Won’t Hurt

Despite the Democrats victory and their propensity to be anti-business and pro-regulation, their victory isn’t likely to hurt the market on Monday. Firstly, the news from over the week-end lifted the uncertainty, allowing investors to move on. Secondly, investors are laser-focused on Federal Reserve policy and future rate hikes.