Can the outcome of US midterm election trigger a market rally?

With the US midterm polls going down to the wire and narrow margins in key races, especially that of the Senate, the Republicans secured pole position in the House of Representatives.

Financial markets, too, were on the edge and keenly awaited the poll outcome. According to Nigel Green, chief executive officer at deVere Group says, reforms to legislation on big tech can be expected to come to a halt in the US due to any gridlock. Pharmaceutical and biotech stocks could also capitalise on a Republican wave, as Democrats are pursuing a bill to lower prescription drug prices.” 

“Also, Energy stocks could be boosted should Republicans take at least one of the chambers,” says Nigel Green, CEO, deVere Group 

However, a relief rally could be in the offing for investors, if historical trends are anything to go by.

Since 1950, the average return for the S&P 500 in the 12 months after a midterm election has been 15%, suggests a Bloomberg report, with no down years.

This time, too, Vaibhav Sanghavi of Avendus Capital Public Markets Alternate Strategies believes the outcome of the US presidential polls could spur a rally across markets.

Vaibhav Sanghavi, Co-CEO, Avendus Capital Public Markets Alternate Strategies says, inflation management is a key issue going into the elections. Will have to wait-and-watch US Fed commentary post poll. Fed may back down from ultra-hawkish stance after Senate elections. Expect relief rally across markets.

Sanghavi says investors’ money could also chase Indian equities.

Sanghavi says, flow of money likely to come back into risk assets globally. Some respite seen in the dollar index as well. EMs likely to attract flows.

Technically, Anand James of Geojit Financial Services expects the Nifty to move up to 18,600 over the next few sessions. He says, the inability to move above 18,350 after initial burst could invite long liquidation pressure, but it would require a correction past 18,200 for sizable downside” - Anand James, Chief Market Strategist, Geojit Financial Services.

“However, an outright fall is less expected though, before testing 18,600 levels,” says Anand James, Chief Market Strategist, Geojit Financial Services. 

Today, investors will track the outcome of the mid-term elections, October inflation and job data for the US.

Back home, the initial public offer of Five Star Business Finance, Archean Chemical Industries and Kaynes Technology India will be on investors’ radar.

Further, Q2 results of Adani Green, Ashok Leyland, Bata India, Berger Paints, Eicher Motors, Gujarat Gas and RITES will be tracked.