Americans head to the polls on 3 November to decide who controls Congress, the body that makes US laws, for the next two years. The result will go a long way towards deciding how much more of President Trump’s agenda gets done.
What's going on here?
Congress holds one of the two main levers on the US economy: taxes and government spending. Republicans control both houses today, but forecasters expect the Democrats to win the House of Representatives, with the Senate too close to call. New laws need the approval of both houses, so winning one would give Democrats sway over any new tax cuts or spending plans.
The other lever, interest rates, sits with the Federal Reserve (the Fed), which has historically taken its cues more from economic data than the political calendar. In 2002, with the economy struggling to recover from a recession, the Fed cut rates by half a percentage point the day after the midterms. In 2022, with inflation near a 40-year high, it raised rates by three-quarters of a percentage point six days before Americans went to the polls.
Elections can unsettle markets in the run-up, but once the results are in, attention usually shifts back to economic data. Since the year 1930, State Street’s data shows the S&P 500 has risen about 14% on average in the 12 months after every midterm, whichever party came out ahead.
What's the takeaway here?
Over the long run, markets have tracked interest rates and earnings far more closely than who controls Congress. Trading around the vote means betting on both the result and the market’s reaction. Staying invested in a diversified portfolio, with assets like gold as a buffer against uncertainty, is a steadier way through whatever Washington does next.
(For an expert-managed portfolio that’s diversified across assets, see General Investing.)
In Other News: America’s big banks open their books
Earnings season kicked off this week with results from Wall Street’s biggest banks, which offer one of the earliest reads on how the US economy is holding up. Banks see it from almost every angle, from how much people and businesses are borrowing to how busy financial markets have been.
So far, the picture looks solid. JPMorgan grew its quarterly profit to $15.3 billion from $14.4 billion a year earlier, with lending up 10%. Its CEO, Jamie Dimon, pointed to strong business investment and steady consumer spending. Choppy markets kept trading desks busy, with Goldman Sachs’s revenue from stock trading up 72% from a year earlier.
There were some cautionary notes as well: activity in mergers and fundraising has cooled after a strong start to the year, and JPMorgan has topped up its reserves for potential loan losses as borrowing gets more expensive. The big banks often set the tone for the rest of earnings season, and this round points to a US economy that’s still growing, even as higher interest rates are starting to show up in the numbers.
Past performance is not an indicator of future returns. These articles were written in collaboration with Finimize.
