Capital is starting to position itself for the midterm elections. Which outcome do you like?
The midterm elections are just one month away, and markets often see big swings around them. BofA’s Hartnett has made the following predictions.
1⃣ Democrats win both chambers: 64% probability—the most likely outcome.
U.S. stocks: down more than 10%.
Tighter corporate regulation and higher taxes would send uncertainty around AI investment policy soaring.
Beware of crowded trades in tech stocks; hold off on adding to positions.
High bond yields could burst the AI valuation bubble.
2⃣ A divided Congress: Democrats win the House, Republicans hold the Senate; 28% probability.
U.S. stocks: up more than 5%.
The result: the two parties would be at loggerheads, unable to change policy, leaving things as they are. The market’s favorite scenario is “nothing changes.”
3⃣ Republicans sweep: 9% probability—the least likely outcome.
U.S. stocks: up more than 10%.
The existing policy framework would remain in place, money would pour into large-cap tech stocks in the Nasdaq 100, and spring would come to U.S. stocks.
In fact, capital has already voted with its feet.
Money market funds saw $166.4 billion in weekly inflows, Treasury bond funds had net inflows of $16.6 billion, and financial stock funds saw net outflows of $3 billion.
Money market funds now hold about $8 trillion. With a yield of 4.2%, you can earn 4% without taking on stock-market volatility—which is exactly what big money loves.
The key point: Midterm elections only trigger a market decline when there’s a major shift. This is a short-term phenomenon.
Over the long term, of the 23 midterm elections, 21 have been positive for U.S. stocks. Only two—in 1978 and 2018—failed to deliver.
If the market follows the first scenario and falls more than 10%, that could be a great opportunity to get in.
The midterm elections are just one month away, and markets often see big swings around them. BofA’s Hartnett has made the following predictions.
1⃣ Democrats win both chambers: 64% probability—the most likely outcome.
U.S. stocks: down more than 10%.
Tighter corporate regulation and higher taxes would send uncertainty around AI investment policy soaring.
Beware of crowded trades in tech stocks; hold off on adding to positions.
High bond yields could burst the AI valuation bubble.
2⃣ A divided Congress: Democrats win the House, Republicans hold the Senate; 28% probability.
U.S. stocks: up more than 5%.
The result: the two parties would be at loggerheads, unable to change policy, leaving things as they are. The market’s favorite scenario is “nothing changes.”
3⃣ Republicans sweep: 9% probability—the least likely outcome.
U.S. stocks: up more than 10%.
The existing policy framework would remain in place, money would pour into large-cap tech stocks in the Nasdaq 100, and spring would come to U.S. stocks.
In fact, capital has already voted with its feet.
Money market funds saw $166.4 billion in weekly inflows, Treasury bond funds had net inflows of $16.6 billion, and financial stock funds saw net outflows of $3 billion.
Money market funds now hold about $8 trillion. With a yield of 4.2%, you can earn 4% without taking on stock-market volatility—which is exactly what big money loves.
The key point: Midterm elections only trigger a market decline when there’s a major shift. This is a short-term phenomenon.
Over the long term, of the 23 midterm elections, 21 have been positive for U.S. stocks. Only two—in 1978 and 2018—failed to deliver.
If the market follows the first scenario and falls more than 10%, that could be a great opportunity to get in.