How will the US midterm elections affect the market? A must read for investors

Midterm elections refer to the election of U.S. congressmen. Unlike the 4-yearly presidential election, members of Congress are elected every 2 years, once in the same year as the presidential election, and once in the "middle" of the presidential term. for the "midterm elections",

The U.S. Congress consists of the House of Representatives and the Senate. There are 435 members of the House of Representatives and 100 members of the Senate. All seats in the House of Representatives and 1/3 of the seats in the Senate are re-elected in each congressional election.

The 2022 midterm elections will be held on November 8, when the two major U.S. political parties, the Republicans and Democrats, will compete for seats in the Senate and House of Representatives.

As the highest legislature in the United States, the House of Representatives and the Senate jointly formulate various bills and control the government budget approval and appropriation power, and the Senate also has the power to approve officials nominated and appointed by the president. It can be said that every move of the US government requires the approval and support of Congress.

Legislation in the House of Representatives and the Senate needs to be voted on. According to the U.S. Constitution, the valid quorum for deliberations in the U.S. Senate and House of Representatives (that is, the quorum for valid voting results) is more than half of the members of the House. That is to say, when the parliament conducts deliberation, more than 218 members of the House of Representatives need to be present, and more than 51 members of the Senate need to be present to be considered valid.

In addition, for Congress to pass a bill, it needs to obtain the approval of the majority of the members of the Senate and House of Representatives participating in the voting, that is, there are more affirmative votes than negative votes, and the relevant resolution can be passed.

Thus, if a party can secure a majority in parliament, it has more control over the outcome of the vote and can block or push a bill through.

For U.S. presidents, bills and appointments proposed by the president are more likely to pass Congress if their party holds a majority in both the Senate and the House of Representatives. For example, when Biden was elected president in 2020, his Democratic Party took control of both houses, which allowed Congress to approve a large-scale economic stimulus plan proposed by Biden in 2021. On the contrary, if the US president's party does not have a majority in Congress, the president will face many obstacles in implementing his governing plan.

In short, because the midterm elections will determine who controls Congress, it will have a profound impact on the presidential election two years from now, as well as the next president's administration. Therefore, the midterm elections will be a focus of attention in the second half of the year.

Currently, Democrats still control the Senate and House of Representatives by a narrow margin. In the Senate, Democrats, Vice President Kamala Harris (Kamala Harris), can cast a key vote in a tie. In the House of Representatives, Democrats hold a 221-seat majority.

However, President Biden's recent polling approval ratings have been declining. According to the latest CNN poll, 75% of Democratic voters want other candidates to run in 2024. That could be a drag on Democrats' performance in the midterm elections.

Republican polls, on the other hand, have risen sharply, with Republicans likely to win 211 House seats, according to Politico.com, ahead of the 194 Democrats likely to win. Therefore, after this midterm election, Democrats are likely to lose control of the House of Representatives.

If so, President Biden's administration in the next term may face greater resistance, and his leading economic stimulus plan may not be implemented smoothly. The U.S. economy faces a greater risk of recession given that the U.S. reported a second-quarter GDP of -0.9%, two consecutive quarters of declines. That could put further pressure on the outlook for the dollar and U.S. stocks. In addition, crude oil is also bad, because the economic recession will also affect the oil demand side; gold is expected to be boosted due to its risk-averse factors; at the same time, the euro, pound, yen, etc., which are a basket of currencies for the US index, are also expected to usher in appreciation. Chance.