Page 15 - ISQ October 2022

INVESTMENT STRATEGY QUARTERLY

The State of the Midterm Elections:

Red Wave or Blue Wall?

Ed Mills, Managing Director, Washington Policy Analyst, Equity Research

The political set up at the beginning of 2022 carried
significant warning signs for Democrats with a political While we continue to expect that Democrats
prognosis that a ‘Red Wave’ is coming, favouring the are likely to lose the House, prospects for
election of Republicans. Democrats, now holding the White Democrats retaining the Senate have
House and both houses of Congress (five seats in the House materially improved into the autumn.
and tied in the Senate) are not only battling history (the
party controlling the White House has lost an average of 23 However, while there are still significant structural factors that
seats in the midterms over the last 40 years), but they are favour Republican candidates in this midterm cycle, we are seeing
also battling a macro environment that traditionally is a signals that the floor is rising in terms of expected Democratic per-
formance that could present an unexpected ‘Blue Wall’ of resistance
political albatross for the party in power. for Republicans’ chances of significantly altering control of Wash-
ington. Recent electoral surprises favouring Democrats in Kansas,
Polling shows near record levels of dissatisfaction with the direc- New York, and Alaska highlight that the race is more fluid than many
tion of the country among voters, historically low approval ratings had expected at the start of this year. The traditional voter enthu-
for President Biden, and inflation concerns dominating the head- siasm behind challengers is in part being matched by voters
lines. Looking at the data, voters’ minds regarding midterm responding to the recent Supreme Court decision in Dobbs v.
elections have traditionally been effectively made up around the Jackson Women’s Health Organisation. Additional factors moti-
spring of a midterm election year. In fact, presidential approval vating Democratic voters and Democratic-leaning independents
has not been shown to materially improve in the past 40 years include a string of high-profile legislative victories, including
from the spring into the fall of a midterm election.
domestic technology manufacturing incentives and a finalised rec-
onciliation bill that directs new funding toward clean energy

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