As FWR goes to press, most of the results of the midterm elections are in, pointing to Republicans taking control of the House, with the Senate remaining in Democrat hands. A "red wave" appears not to have taken place to quite the extent some had predicted. Wealth managers waking up to yesterday's voting give early reactions.

As of the time of going to press, it appears that the Republican Party is on course to take control of the House of Representatives, although it looks as if the Democrats will retain the Senate. In fact, it appears that the supposed “red wave” has not fully materialized. That said, a Republican-controlled House will mean that President Joe Biden will find it harder to push through more economic measures. It has been a traditional pattern for the ruling party to suffer reverses in the midterms (similar patterns can be seen in other democracies). Divided government can sometimes correlate with benign market conditions, although that may not be the case now. The Republicans often campaigned this time on economic and social issues, such as high inflation, energy prices and rising crime, while the Democrats were, among other issues, making a point about a recent Supreme Court ruling on abortion. 

Recent years have seen a surge in public spending under both the Trump and Biden administrations; the stock of US public debt continues to rise, and the country has to confront a world of rising interest rates and a move away from more than a decade of Federal Reserve quantitative easing. 

With the caveats about election results not being fully known, we carry some early thoughts that broke in Europe as some of the vote counting was completed. We may update this later during the day. Email tom.burroughes@wealthbriefing.com with your thoughts.

Anthony Ginsberg, manager of HAN-GINS Tech Megatrend Equal Weight UCITS exchange-traded fund
"Historically, Wall Street has favored a divided government. With a Democrat in the White House and Congress under Republican control, there is a break on either side carrying out any extensive policies, which may prove to be a source of calm for markets.

However, we think the Republicans retaking Congress is potentially good for tech specifically. Tech stocks this year have been hurt by high inflation expectations. Democrats are seen as the party of big government spending, so they are blamed for the high inflation rate in the US. A Republican victory in Congress, therefore, means a big curtailment on Biden's government spending plans. This is seen as a positive by Wall Street in ultimately reducing US inflation. Lower inflation expectations are positive for growth stocks like technology.

At the same time, if Republicans adopt a more business-friendly approach to tech deals, we could see a great deal of pick up in tech and healthcare deal activity."

Stuart Clark, portfolio manager, Quilter Investors
“The US midterms has delivered an uncertain result that is likely to drag on for some time to come. The House of Representatives was always likely to flip to the Republicans and it appears as if it is on course to do so. The Senate remains up for grabs, however, as key races in Georgia and Arizona remain to close to call.

Ultimately, the market is clinging to the view that the split power will be beneficial for markets as more extreme policies are gridlocked out and watered down. But ultimately what does gridlock in the current environment mean for the ability to deliver requisite policy and enable the US economy to emerge out of the current situation. The arguments in favor of split power in the legislative chambers of the US will prove to be flawed as we are in a period of higher interest rates and will once again see the lack of agreement for budgets and, of course, the debt ceiling. 

The shift to a split executive/legislative will likely fail to boost the market as other forces overwhelm, primarily the inflation and growth dynamics. As such, investors will need to remain calm and patient while the political risk plays out.

While the rhetoric and uncertainty is only going to ramp up in advance of the general election in 2024, these results could point to the beginning of the end of Donald Trump. While he would look to implement pro-business policies if re-elected in 2024, the division and chaos brought about by his previous presidency means markets could cheer the fact there could be a less bombastic character running for president. But with the country so split down political lines, this very much remains to be seen.”
 

John Vail, chief global strategist, Nikko Asset Management 
"Republicans will likely be disappointed with the result in aggregate, but as long as they win the House, there will be a political stalemate regarding most economic matters, which basically matches consensus, so markets probably should not react too much. There is some danger that with a slim majority in the House, its leadership will be beholden to the Trump camp, which could cause some fireworks in markets, especially regarding the threat to prevent an increase in the debt limit. However, the last time the GOP tried this, it backfired on them and the difficulties the Democrats experienced in curtailing their most progressive members during the last two years might serve as a warning to all Republicans to be more cohesive. 

The political environment is going to get very confrontational and, if it becomes extreme, markets will likely react negatively."

Björn Jesch, chief investment officer, DWS
"From a market perspective, one can be quite satisfied with the results of the US midterms so far. This is mainly because of what will probably not happen after a turbulent election night.

First, the Senate seat in Georgia is likely to go to a runoff on December 6. But in the meantime, the chances are good that this time it will not come down to Georgia. So the market is likely to be spared another four weeks of uncertainty about the Senate majority. After counting the absentee ballots, especially in Nevada and Arizona, there should be clarity by the weekend.

Secondly, we would be cautious about being too sure about the exact distribution of seats in the House of Representatives. The count in the western states is too low and the number of surprising results in the eastern states is too high. What is clear, however, is that a possible Republican majority is likely to be very close.

From the market's point of view, that would be quite charming. On the one hand, it would remove the threat of corporate tax hikes or further spending pacts that would have resulted from a Democratic victory in both houses.  On the other hand, the Republicans would presumably be too weak and too divided to set strong legislative accents of their own.  

This development is unlikely to impress the market, which already has enough other worries, starting with tomorrow's inflation figures.