US midterm elections: what the result could mean for investors
The US midterm elections have shifted the balance of power in Washington. But what could the result mean for investors? We look at what’s changed, how markets may respond and why keeping focused on your long-term financial plan can matter more than short-term political developments.
The US midterm elections have changed the balance of power in Washington, with the Democrats taking control of both the House of Representatives and the Senate.
But what does that actually mean, and should investors be concerned?
Political events can create uncertainty and short-term movements in financial markets. But elections are only one of many factors that influence investments.
Over the longer term, economic growth, inflation, interest rates, company earnings and valuations are likely to matter more.
At a glance
- The Democrats have gained control of both the House of Representatives and Senate, giving them control of Congress.
- This could make it harder for President Donald Trump to make significant changes to areas such as taxation and government spending without cross-party support.
- For investors, the result provides greater clarity on the political landscape, but it doesn't remove wider economic and geopolitical uncertainty.
- A change in political control doesn't necessarily mean you need to change your investments or financial plan.
What is a US midterm election?
US midterm elections take place halfway through a president's four-year term.
The president isn't being elected. Instead, voters decide who represents them in Congress, the legislative part of the US federal government.
Midterms matter because they can change which political party controls Congress and, as a result, how easy or difficult it is for a president to turn their political agenda into legislation.
In this election, the Democrats have taken control of both parts of Congress, the Senate and the House of Representatives.
What is the US Senate and what does it do?
The Senate is one of the two chambers that make up the US Congress.
Every US state is represented by two senators, regardless of the size of its population.
The Senate considers and votes on legislation. It also has specific responsibilities that include approving certain senior presidential appointments and considering international treaties.
Who controls the Senate therefore matters to a president's ability to deliver parts of their political agenda.
What is the House of Representatives and what does it do?
The House of Representatives is the other chamber of the US Congress.
Unlike the Senate, the number of representatives allocated to each state is broadly based on its population.
The House debates and votes on legislation and plays an important role in areas including taxation and government spending.
For significant legislation to become law, it will generally need to pass both the House and Senate before reaching the president.
What does the US midterm result mean for President Trump?
With Democrats controlling Congress, President Trump will be in a weaker position when it comes to passing significant legislation.
He will need to work with Democratic leaders on major issues, particularly government spending and tax policy. Democrats will also have greater powers to scrutinise his administration.
However, political disagreement isn't necessarily bad news for financial markets.
With the election decided, investors have greater clarity about the balance of power in Washington and can assess which policy changes are now more, or less, likely to happen.
What does the result mean for investors?
It's easy to focus on the immediate market reaction following a major election. But political developments are only part of a much larger investment picture.
Political events like the US midterms naturally attract attention, particularly when they change the balance of power in Washington. But for investors, it's important not to lose sight of the bigger picture. Elections are one influence on markets, but economic growth, inflation, interest rates and company earnings are ultimately much more important to long-term investment outcomes. Rather than reacting to individual political events, investors should remain focused on their long-term objectives and ensure their investments remain appropriate for the level of risk they're comfortable taking. For investors, some of the biggest questions are therefore likely to remain familiar ones: what's happening to inflation? Where are interest rates heading? How strong is economic growth? And how are company earnings and valuations evolving? These are among the factors that can have a more lasting influence on investment returns than individual political events.
Joseph Allen, Senior Investment Specialist
Should you change your investments because of an election?
A single election result is rarely a reason on its own to change a long-term investment strategy.
Markets constantly respond to new information. That includes elections, but also inflation figures, interest-rate decisions, geopolitical events, economic growth and companies' financial results.
Trying to anticipate every short-term market move can be extremely difficult.
A diversified portfolio can help spread investment risk across different asset classes, geographical regions and companies, reducing reliance on any single market or outcome.
That doesn't mean ignoring what's happening in the world. It means considering political developments as one part of a much bigger picture.
What does this mean for your financial plan?
When political or market uncertainty increases, it's natural to question whether you should do something differently with your money.
But a long-term financial plan should be designed with change in mind. Governments change. Economies move through different cycles. Markets rise and fall.
The more important question is whether your circumstances, objectives or attitude to risk have changed.
If they haven't, short-term political developments may not require any change to your financial plan.
If you're concerned about how market or political developments could affect your investments, speaking to a financial adviser can help you understand whether your current plan remains right for you.
Important Information
This article is for information purposes only. It is not intended as investment advice.
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The value of investments and the income from them can fall as well as rise and are not guaranteed, and you might not get back your initial investment.
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