Cautious US Stocks' Moderate Rebound '

The United States ushered in another "fruitless election day".

At the end of yesterday's election, the final outcome of the 2022 midterm elections was not revealed. As of 24:00 Eastern Time on November 8th, the results of this midterm election at the House level have become clearer. The aides of House Republican leader McCarthy pointed out that the current vote count results are consistent with expectations, and the Republican Party will occupy a majority in the House of Representatives.

Against this backdrop, the battle of attracting and burning money behind the midterm elections is also raging. Due to the complex election situation and fierce competition between the two major parties, the cost of this midterm election has continued to skyrocket. According to public data, the total amount of donations from American super wealthy individuals during this year's midterm elections reached a record high of $880 million, an increase of 44% compared to 2018. Some people also predict that the total donation of super wealthy individuals during this midterm election is likely to exceed $1 billion.

In addition, according to the top ten list of super wealthy donations released by American media, a total of 7 people have chosen to support the Republican Party. More importantly, the world's richest man, Musk, publicly expressed his support for the Republican Party and called on the public to vote for it on the day before the midterm elections, which is clearly not good news for Democrats.

This report mainly analyzes the three core issues of this election: what is the current election situation in both the House and Senate? When can the election results be determined? And what is the impact on US stocks?

1、 The Republican Party of the United States takes over the House of Representatives

As of 24:00 Eastern Time on November 8th, in the race for Senate seats, the Republican Party has won 17 seats and the Democratic Party has won 11 seats, which are still in the process of voting

The total number of seats in the House of Representatives is 435, with 218 votes to win. The Democratic Party received 216 votes, the Republican Party received 219 votes, and has won the House of Representatives

The election situation at the House level in this midterm election has become clearer. The aides of House Republican leader McCarthy pointed out that the current vote count results are consistent with expectations, and the Republican Party will occupy a majority in the House of Representatives. Media and analysts leaning towards the Democratic Party also acknowledge this prediction. However, no matter which side the media leans towards, they have not fully confirmed the vote counting results of the key "battleground states" in the Senate elections. In other words, it is currently unknown which party will control the Senate.

After the election, Biden avoided all public activities, and the outside world interpreted his behavior as "preparing for defeat". Biden's advisors privately stated earlier on the 8th that they no longer see the possibility of Democrats retaining a majority in the House of Representatives. What they really care about is the Senate election.

2、 Select the time for publishing the results

After the voting begins, the counting of votes will also be synchronized, and usually the next day, major media reports on the preliminary counting results. At this point, a rough judgment can be drawn, and the official election results need to wait for state certification before being finalized. However, due to the existence of postal ballots and possible runoff, a clear result could not be obtained on the second day of the election.

Specifically:

1. Vote mailing: Most states only accept mailed ballots delivered on or before the election day, but there are also 19 states that require a postmark date no later than the election day, and the counting results of these states may be subject to variability.

2. Possible runoff: Georgia and Louisiana stipulate that the winner must have a vote rate of more than half. If no one reaches, the top two candidates will be selected for another round of voting, also known as a runoff. Georgia's runoff date is December 6th, while Louisiana's runoff date is December 10th. Georgia is a swing state of the Senate, and its election results largely determine which party will control the Senate, which needs special attention.

3. Result authentication and recount: After the counting of votes is completed, each state will authenticate the counting results, and the vast majority of states require completion within 3 weeks. If a candidate has objections to the certification result, they can apply for a recount, but usually the result will not be changed. There have been 31 recounts in the past 20 years, and only 3 have changed the original result.

Figure 4: State Vote Mailing Regulations

Figure 5: Certification time for election results in each state

3、 The impact of mid-term elections on the capital market

Analyzing the impact of this midterm election on asset prices can be approached from two perspectives: firstly, a similar situation in history, where the ruling party controlled the two houses before the midterm election and observed the differences in asset price performance corresponding to different results of the midterm election, with a more short-term perspective; The second is to compare the differences in the performance of major assets under different control of the ruling party over Congress in history, with a more medium to long-term perspective.

The specific analysis is as follows:

1. Short term perspective: Since 1950, the ruling party has controlled both houses of parliament 9 times before the midterm elections, and after the elections, the ruling party has continued to control both houses 4 times, lost one house 2 times, and lost both houses 3 times. Due to being still in the Bretton Woods system before 1972, the US dollar exchange rate and gold price were fixed, mainly manifested in US stocks and bonds.

2. From the following chart, it can be seen: (1) US stocks: If the ruling party continues to control both houses after the midterm elections, most US stocks will show an upward trend; If we lose one house, the US stock market will decline in the short term; If we lose both houses, the US stock market will experience one short-term decline and two sustained gains. So the recent three consecutive gains in US stocks may be a "mild rebound" in the market, and caution should be exercised in pursuing gains.

Figure 6: Performance of the S&P 500 Index under Different Election Results