Pre-Market Stocks: What the Midterm Elections Could Mean for the US Economy

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Tuesday’s midterm elections come at a time of economic weakness in the United States. Recession predictions have largely become “when,” not “if,” and inflation remains more stubborn. Americans are feeling the pain of rising interest rates and facing a winter filled with geopolitical tensions.

The results of Tuesday’s election will determine the composition of a congressional body with the power to enact policies that will fundamentally change the fiscal landscape.

Here are the policy issues investors will pay particular attention to as they digest the election results.

Tax changes: Last week, President Joe Biden suggested he may impose a tax on big oil after record gains in high gas prices. Republicans would be less likely to support a tax on oil company profits and are generally not in favor of raising taxes on the wealthy, reports colleague Paul R. La Monica.

“What do midterms mean for markets? If the Republicans get the House, the tax hikes are dead in the water,” said David Wagner, portfolio manager at Aptus Capital Advisors.

What about tax cuts? If Republicans control Congress, it would be difficult to enact major tax cuts without the support of Democrats or President Biden, meaning there could be greatness without greatness.

Debt limit: The federal debt ceiling was last raised in December 2021 and will likely be hit by the Treasury next year. This means that it will have to be raised again To ensure that America can borrow the money it needs to run its government and to ensure the smooth functioning of the US Treasury market overall. Approximately $24 billion.

A battle between Democrats and Republicans seems to be brewing. House Republicans have indicated that they may demand significant spending cuts exchange for increasing the ceiling.

If the government ends up divided and the brinkmanship continues, there could be bad news for the markets. The last time such a network happened, in 2011 under the Obama administration, the United States lost Standard & Poor’s perfect AAA credit rating and stocks fell more than 5%.

Expense: Democrats have said they want to focus on parts of President Biden’s proposed 2021 fiscal agenda that have not yet become law, including expanding health coverage and child care tax credits. A Republican victory or deadlock could put that on the table. Economists at Goldman Sachs also note that a Democratic victory could likely increase that federal fiscal response in the event of a recession, Republicans would avoid costly relief packages.

Social Security: Popular programs like Social Security and Medicare face long-term solvency problems and the issue has become a hot topic on both sides of the aisle. The issue is so closely watched that even discussing the changes could affect consumer confidence, analysts say.

Democratic Senator Joe Manchin said last week that spending changes must be made to protect Social Security and other programs that are “failing.” He said in a Fortune CEO speech that he supported bipartisan legislation over the next two years to deal with entitlement programs that are “horribly troubled.” Republican Senator Rick Scott has proposed voting to renew almost all federal spending programs every five years. Analysts say Social Security and Medicare could be more vulnerable to cuts.

Federal Reserve: Lawmakers are increasingly speaking out against the pace of Federal Reserve interest rate hikes to fight inflation. Democratic Senator Elizabeth Warren, along with Bank President Sherrod Brown, John Hickenlooper and others, have called on Fed Chairman Jerome Powell to slow the rate of hikes.

Now, Republicans are getting involved. Senator Pat Toomey, the top Republican on the Banking Committee, urged Powell last week to resist buying government debt if market conditions remain subdued. Expect more control from both parties after the election.

The stock market under President Biden started with a boom, but as we head into the midterm elections, the markets are about to crash, reports colleague Matt Egan.

As of Monday, the S&P 500 is up more than 13% since Biden took office in January 2021. That’s the second-worst performance by a president in his first 1,022 days in office behind former President Jimmy Carter, according to CFRA Research.

Of the 13 presidents since 1953, Biden ranks ninth in stock market performance at this point in office, trailing only former presidents George W. Bush (-21.6%), Carter (-2.6%) and Richard Nixon (-7.2%) passed ) and Lyndon Johnson (+9.6%), according to CFRA.

In contrast, Biden’s two immediate predecessors headed into their first midterm elections with the stock market soaring. According to CFRA, the S&P 500 rose 58.5% in the first 1,022 calendar days under former President Barack Obama and 36.2% under former President Donald Trump.

American consumers borrowed another $25 trillion in September, according to newly released Federal Reserve data, as higher costs increased reliance on credit cards and other loans, says colleague Alicia Wallace.

In normal economic times, that would be a big jump, Matthew Schulz, senior credit analyst at LendingTree, wrote in a tweet. “However, it is actually the second smallest increase in the last year.” Economists had expected monthly growth of $30 trillion, according to Refinitiv consensus estimates.

The data is not adjusted for inflation, which is at a decade high and weighing heavily on Americans, outpacing wage gains and forcing consumers to rely more on credit cards and their savings.

In the second quarter of this year, credit card balances posted their biggest year-over-year increase in more than two decades, according to separate data from the New York Federal Reserve. The third quarter household debt and credit report will be published on November 15.