Sectors bracing for a pivot as US midterm elections loom
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By Purvi Agarwal and Rashika Singh
Nov 2 (Reuters) - As the US midterm elections approach,
Corporate America is bracing for a potential shift in the
balance of power in Washington.
In case of a strong Democratic showing, analysts and
strategists say clean energy, housing and healthcare stocks
could benefit, while AI, data center and defense names may draw
greater scrutiny from lawmakers.
The odds of a Democratic sweep stood at 72%, according to
Polymarket, the world's largest prediction market, while that of
the Republican Party holding on to the Senate and the Democratic
Party winning the House of Representatives stood at 23%.
The chances of Republicans retaining the Senate and the
House are a poor 6%,while a Reuters/Ipsos poll showed President
Donald Trump's approval ratings at a career low amid voter
concerns over the cost of living and the war with Iran.
Even a divided Congress would give Democrats more control
over investigations and funding, but it would still have to
overcome any veto from Trump.
Investors are closely watching these sectors:
POTENTIAL BENEFICIARIES OF A BLUE WAVE:
CLEAN ENERGY
A strong Democratic showing could reinforce expectations
that federal support for clean-energy development will remain in
place, analysts said, benefiting companies such as solar maker
First Solar FSLR.O , residential solar installer Sunrun
RUN.O , inverter maker Enphase Energy ENPH.O and clean-power
developer NextEra Energy NEE.N .
The Democratic-controlled Congress passed the Inflation
Reduction Act in 2022, devoting hundreds of billions to climate
and energy-security measures, including expanded tax credits for
renewable energy, nuclear power and EVs.
In case of a divided government, brokerage UBS sees room for
bipartisan legislation to speed up energy and infrastructure
approvals and expects nuclear power to get backing from both
sides.
Democrats plan to scrutinize the Trump administration's
efforts to roll back emissions rules and could use the
Congressional Review Act to overturn regulations that make it
easier to sell gas-powered trucks and SUVs.
Automakers Ford F.N , General Motors GM.N and Stellantis
STLAM.MI , which have scaled back EV plans and lobbied for
looser rules, could face pressure.
HOMEBUILDERS
UBS said the Trump administration would continue to
implement the 21st Century ROAD to Housing Act, which Congress
passed in late June, to increase the availability of affordable
single-family homes.
If Democrats take both chambers, they could add
affordability measures, including restrictions on large
institutional landlords, though those would still face Trump's
veto, UBS said.
The PHLX Housing Index .HGX has slipped close to 5% so far
this year as the prospect of higher interest and mortgage rates
weighs on the sector.
SECTORS AT RISK FROM A BLUE WAVE:
AI AND DATA CENTERS
Analysts expect a Democratic majority to bring greater
scrutiny of AI, potentially pressuring data-storage and memory
names such as Micron Technology MU.O , Sandisk SNDK.O and
Seagate STX.O , which have rallied this year.
A slowdown in AI and data-center spending could also weigh
on semiconductor-equipment makers AMAT.O LRCX.O KLAC.O ,
power providers CEG.O VST.N and data-center builders PWR.N
VRT.N .
A Democratic majority would be more likely to use subpoena
powers to compel tech executives to testify under oath or hand
over records related to harmful AI-agent behavior.
Also, voters in at least 10 states could consider ballot
measures that could impose new restrictions, permitting
requirements or pauses on data-center development.
Still, Societe Generale said the AI trade is likely to
remain intact as Democrats are unlikely to secure a majority
large enough to override a Trump veto and key federal agencies
remain under Republican control.
HEALTHCARE
Healthcare faces a mixed outlook under a Democratic sweep,
with greater scrutiny of Medicaid and Medicare Advantage plans
potentially weighing on insurers, though TD Cowen sees limited
risk of major industry changes and broad structural reform.
The S&P 500 healthcare sector .SPXHC has jumped more than
19% this year to record highs, trailing only energy stocks, as
investors rotated into defensive sectors amid market volatility.
A Democratic-controlled House would heighten the possibility
of raising taxes to fund a fiscal program that includes more
health spending.
"A Democratic sweep could create greater momentum behind
measures targeting healthcare costs, consumer fees, prescription
drug pricing and areas perceived to contribute to affordability
concerns," said Magdalena Ocampo, market strategist at Principal
Asset Management.
DEFENSE
Defense stocks rallied in January after Trump called for a
$1.5 trillion military budget, above the approved $901 billion,
but they have since surrendered most of those gains.
A budget vote is unlikely before 2027. Democratic control of
the House could bring military spending back under scruntiny,
with analysts noting Congress has yet to appropriate funds for
the multibillion-dollar contracts that big defense contractors
signed to replenish stockpiles.
However, with the Iran conflict showing no sign of ending,
companies such as RTX RTX.N and Northrop Grumman NOC.N
continue to see robust demand for arms, pushing their backlogs
to record levels.
FINANCIALS
Morgan Stanley analysts said additional oversight under a
Democratic outcome could slow the pace of regulatory easing, but
was unlikely to derail it.
A Democratic Congress last overhauled bank regulations with
the 2010 Dodd-Frank law, which tightened capital rules, created
a consumer watchdog and imposed new trading restrictions.
A stronger GOP hand would support regulatory clarity and
policy continuity. Keeping conditions favorable for mergers and
acquisitions and sustaining capital markets activity are a big
earnings driver for large banks, Barclays analysts said.
Quarterly results from JPMorgan JPM.N , Citigroup C.N ,
Goldman Sachs GS.N and Wells Fargo WFC.N earlier this month
suggested that a dealmaking and trading boom that powered record
first-half earnings may be slowing.
CRYPTOCURRENCIES
Analysts say the election is unlikely to have a significant
impact on cryptocurrency prices but will likely influence how
quickly crypto legislation moves through Congress.
The Senate failed in September to advance the Clarity Act
amid Democratic opposition, and analysts say a
Democratic-controlled Senate would make it harder for the crypto
bill to be revived next year.
Reuters has reported that Democrats in Congress are
preparing investigations into crypto companies tied to Trump and
his family, arguing the dealings present potential conflicts of
interest.
That could generate adverse headlines and legal risks for
some publicly listed firms in the crypto and blockchain
industries, attorneys told Reuters.
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(Reporting by Purvi Agarwal and Rashika Singh in Bengaluru;
Additional reporting by Chris Sanders, Mike Stone, Courtney
Rozen, Michelle Price and David Shepardson in Washington and
Caroline Humer in New York; Editing by Arun Koyyur)
((mailto:Purvi.Agarwal@thomsonreuters.com;
mailto:Rashika.Singh@thomsonreuters.com))