The national elections in any nation always have had a profound impact on legislation and markets and so the mid-term election in the US is no exception. The US 2022 mid-term election was conducted on 435 seats in the House of Representatives and 35 seats from the upper house, the Senate. Results to date are showing a clear indication of Republicans' hold in the house of Representatives and but in the Senate Democrats are giving a tough fight to Republicans. Over the past year, we’ve seen changes in Federal Reserve’s monetary policy stance to stimulate the economy from recession and legislations on infrastructure bills, cannabis, the healthcare sector, etc, and the mod-term 2022 election will set the future directions. There are many questions that investors are seeking answers to like- will there be more tax cuts? Will spending continue to increase? What will happen to interest rates? These are all important questions investors looking for and the 2022 mid-term election is expected to provide answers for some and set the future direction. Economies and hence stock markets are not operating in isolation and hence economic and monetary policies like interest rate decisions, inflation, and unemployment rates have had a profound impact on businesses and household consumption. Many studies conducted in the past have established a strong correlation between the US and the Australian stock market. More specifically, in a down market, the benchmark ASX 200 index exhibited a strong correlation with the benchmark index S&P 500. While the 2022 mid-term election will have far-reaching consequences for the country as a whole and in many sectors. We believe that sectors like healthcare, clean energy, and Infrastructure will be vulnerable to the outcome. 

Healthcare

We believe that Healthcare is one of the key sectors to watch for. The two parties have different approaches to healthcare. The Republicans recently advocated for less government control over healthcare. On the other hand, the Democrats believe that the government should assist in providing affordable healthcare for everyone. Both parties agreed that healthcare is important but have different approaches to the sector. The Republicans have often expressed their desire to repeal and replace the Affordable Care Act (Obamacare). On the other hand, Democrats are looking to maintain that. The two parties also have different opinions on how they would like to address the rising cost of prescription drugs. In general, the Republicans are in favor of a free market approach, while the Democrats are favoring more subsidies and drug price restrictions. In our view, the Republicans' victory will provide a tailwind to biotech companies and emerging pharmaceutical companies. Stocks to watch out for Avita Medical Inc (ASX: AVH), Clinuvel Pharmaceuticals Ltd (ASX: CUV), Cynata Therapeutics Ltd (ASX: CYP), etc.

Clean Energy

In August, President Joe Biden signed a comprehensive $369 billion climate and clean energy legislation, delivering on one of his key campaign promises to invest in renewable energy and create jobs in the emerging clean economy. On August 16, 2022, the Inflation Reduction Act (the "Act") was signed into law. This legislation is the most comprehensive energy and climate policy for the US and includes $369 billion in funding and tax credits for climate and energy programs. The bill extends tax credits for wind and solar power, electric vehicles, and energy-efficient buildings. Stocks to watch out for Genesis Energy Ltd (ASX: GNE), Betashares Global Sustainability Leaders ETF (ETHI), Argosy Minerals Ltd (ASX: AGY), Peninsula Energy Ltd (ASX: PEN), etc.

Infrastructure

Infrastructure is a critical sector to watch out for. Republicans and Democrats have both proposed plans to increase spending infrastructures. However, there is a significant discrepancy between the two parties’ proposals. Last year, Republicans countered Biden’s $1.7 trillion infrastructure plan with a $257 billion proposal, highlighting the importance of infrastructure spending as an election issue. The mid-term election will set the future direction for the infrastructure sector and companies. Suppose the Democrats successfully retain control of both houses. We can expect to see more ambitious legislation along the lines of President Joe Biden’s $1.7 trillion infrastructure bill last year. This would be a major win for infrastructure companies, as they could continue to count on a steady stream of government contracts. However, if Republicans successfully take back control of the House, we can expect less spending for infrastructure development. This would be a major setback for infrastructure companies, as they would have to scale back their operations and lay off workers. The midterm elections will therefore be a key determinant of the fortunes of the infrastructure sector.

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