- Control of US Congress hangs in the balance but investors appear to be pricing in a Republican victory
- Worries about the economy have loomed large in the political campaign
- Stocks expected to benefit from a GOP win, such as defence and pharma firms, have been rising
- Meta shares lifted after rumours swirl of mass layoffs globally.
- Elon Musk throws weight behind Republicans adding to controversy surrounding his ownership of Twitter.
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:
“The control of US Congress hangs in the balance today as the mid-term elections are set to take place, but already the markets appear to be pricing in a Republican victory. Although the final polls pointed to an increasingly competitive political landscape, worries about the economy are looming large in this campaign, hinting that there could be trouble for Democrats in the Congressional race and in the fight for seats up for grabs in the Senate, especially with Joe Biden remaining unpopular.
Stocks expected to benefit from a Republican administration largely rose on Monday with pharmaceutical companies receiving a boost amid expectations a US Congress with at GOP majority may roll back or at least not impose fresh legislation aimed at lowering prescription drug prices. Shares in defence firms such as Lockheed Martin have also risen sharply on hopes that there could be a faster acceleration in military spending if Republicans gain seats in a dramatic fashion. Energy stocks have continued their climb with investors speculating that policies encouraging greater oil and gas exploration would be brought in if Republicans managed to clinch control of the House and the Senate. Exxon shares lifted a further 1.1% adding to gains of almost 80% year to date.
If Democrats do pull off a turnaround and hold sway, it is likely to boost the fortunes of green energy providers given the expectations that more legislation prioritising solar and other cleaner forms of energy would be brought in. Already Joe Biden has seen his stimulus plan to boost spending on America’s creaking infrastructure watered down and there are forecasts tax revenue allocated to future projects could also be hit, if the Democrats don’t manage to cling onto power.
Some investors judge these policies aimed at stimulating growth to be inflationary, so there could be a knock-on effect of a small boost to tech stocks, given the expectation that pulling government funds out of the economy could help lower the price spiral which the Federal Reserve is fighting so hard to contain. Already there are hopes that Thursday’s inflation report could show signs that pressures are beginning to ease, which would add to expectations that there may be a slower pace of rate increases over the coming months.
In the immediate future, how tech companies tackle declining demand for products and services as the economy slows is likely to stay more sharply in focus. Meta shares rose after rumours swirled about mass lay-offs set to hit its workforce around the world this week. It’s no secret that Meta is in trouble, as advertising demand slows dramatically, costs mount up and users are lured away by the Pied Piper tunes of TikTok. It’s little surprise that the company is considering cutting expenditure by drastically reducing headcount given hints Mark Zuckerberg made in a recent statement that the company would “focus our investments on a small number of high priority growth areas.” The elusive plumbing of the metaverse appears to be the sink that Meta funds are being poured down, and just when returns will pop back up remains highly unclear.
If layoffs do come in the next few days, it’ll mark a pretty sombre week for tech employees given redundancy notices have already been handed out en masse at Twitter. It seems Elon Musk may already have been hit with another bout of remorse amid reports that attempts are being made to entice some sacked staff back. But with the controversial boss already throwing any sense of political impartiality to the wind by coming out in support of the Republicans in the mid-terms, it’s likely that once loyal staff and users, will keep drifting away.”