Control Of Congress Up For Grabs In Midterms: 12 Stocks To Watch

As voters endeavor to select the congressional candidates they believe would best assist the U.S. in navigating through historical issues it is currently facing, investors are wondering what's going to happen to equities.

For the worried investor, don't fret. Historically speaking, markets rise after midterm elections.

An analysis from US Bank found that since 1939, the stock market has increased in the year following a midterm election, regardless of which party has taken control of Congress.

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Additionally, even while the market's post-midterm performance has changed over the years, on average, there has been a noticeable outperformance particularly in the first six months following election day.

The S&P 500 Index has returned an above average 15% for the six months beginning Nov. 1 of each midterm election year going back to 1962, according to data from US Bank. Returns for the same time periods in non-midterm years were 4% on average.

But, Morgan Stanley’s top-ranked strategist, Michael Wilson, sees even more upside if Republican’s can take control of at least one chamber of Congress.

Wilson wrote in a letter on Monday that polls suggesting the Republicans will win at least one chamber of Congress might act as a trigger for lower bond yields and higher equities prices, which would be sufficient to sustain the bear-market rally.

“One would think [a Republican clean sweep] could be enough to invoke the kind of rally in 10-year UST bonds to keep the equity market moving higher,” the strategist said.

Which stocks should you keep an eye on this week? We’ve gathered a list.

Health Care

• Pfizer Inc PFE
• AbbVie Inc ABBV
• Eli Lilly & Co LLY
• Merck & Co Inc MRK

Cowen & Co analyst Rick Weissenstein wrote in a note to investors earlier in October saying, “Republicans have traditionally been more favorable to the drug industry than Democrats, while Republicans won’t be able to repeal the drug pricing provisions, [under the Inflation Reduction Act] they have vowed to hold hearings on the plan and to look for other ways to slow down implementation of the bill.”

U.S. China Stocks

• Alibaba Group Holding BABA
• Pinduoduo Inc PDD
• Baidu Inc BIDU

Using Trump-era audit legislation that have support from both Democrats and Republicans, the SEC identified 200 stocks that face removal for denying U.S. auditors access to their information. The level of scrutiny might be increased under a Republican-controlled House.

Tech

• Alphabet Inc GOOG GOOGL
• Meta Platforms META
• Amazon.com, Inc AMZN
• Intel Corp INTC
• Microsoft Corporation MSFT

The midterm elections also bring additional attention to the Trump administration's R&D tax credit, which expired last year.

Companies like Intel and Amazon, who spend a lot on R&D, would be able to completely deduct those costs in the year they were incurred rather than having to spread them out over a five-year period under the legislation.

If the R&D tax is reversed, it would be a boon for the tech industry.
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