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 vulnerability for the United States. Recession predictions have largely turned to “when” not “if” and inflation remains stubbornly high. Americans are feeling the pain of rising interest rates and facing a winter full of geopolitical tension.

The results of Tuesday’s election will determine the makeup of a congressional body that has the potential to enact policies that will fundamentally change the fiscal landscape.

Here’s a look at which political issues investors will be paying particular attention to as they digest the election results.

Fiscal changes: Last week, President Joe Biden suggested he might impose a windfall tax on big oil companies after they posted record profits on high gas prices. Republicans would be less likely to approve such a windfall tax on oil company profits and are generally not in favor of raising taxes on the rich, reports my colleague Paul R. La Monica.

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

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

Debt limit: The federal debt ceiling was last raised in December 2021 and will likely be hit by the Treasury sometime next year. This means it will have to be reconsidered in order to ensure that the United States can borrow the money it needs to run its government and ensure the smooth functioning of the US Treasury bond market, for a total of approximately $24 trillion.

A fight between Democrats and Republicans appears to be brewing. House Republicans indicate they may seek major spending cuts exchange to raise the roof.

If the government ends up being divided and the gap remains, there could be bad news for the markets. The last time of this lock It happened, under the Obama administration in 2011, the United States lost its perfect AAA credit rating from Standard & Poor’s and stocks fell more than 5%.

Expenses: Democrats have indicated they intend to focus on parts of President Biden’s proposed 2021 tax agenda that have not yet become law, including expanding health care coverage and tax credits for child care A Republican victory or a gridlock could put that to rest. Economists at Goldman Sachs also note that a Democratic victory could add to that federal fiscal response in the event of a recession, while Republicans would be more likely to avoid costly relief packages.

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

Democratic Sen. Joe Manchin said last week that spending changes must be made to shore up Social Security and other programs that he said were “bankrupt.” He told a Fortune CEO conference that he favored bipartisan legislation over the next two years to tackle entitlement programs that face “tremendous problems.” Republican Senator Rick Scott has proposed subjecting almost all federal spending programs to a renewal vote every five years. Analysts say that could make Social Security and Medicare more vulnerable to cuts.

The Federal Reserve: Lawmakers have increasingly spoken out against the pace of Federal Reserve interest rate hikes to fight inflation. Democratic senators Elizabeth Warren, along with bank chairman Sherrod Brown, John Hickenlooper and others, have called on Fed Chairman Jerome Powell to slow the pace of hikes.

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

The stock market under President Biden started off with a boom, but as we head into the midterm elections, markets are falling apart, my colleague Matt Egan reports.

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

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

By contrast, both of Biden’s immediate predecessors headed into their first midterm elections with stock markets up. 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, according to CFRA.

U.S. consumers borrowed more than $25 billion in September, according to newly released Federal Reserve data, as higher costs led to greater reliance on credit cards and other loans, reports my col ·League Alicia Wallace.

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

The data does not adjust for inflation, which is at decade highs 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 saw their biggest year-over-year increases in more than two decades, according to separate data from the New York Federal Reserve. The third quarter household credit and debt report will be released in November. 15.

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