Page 16 - ISQ October 2022

INVESTMENT STRATEGY QUARTERLY

production and extends healthcare coverage for many Americans. ic-held seats flips control of the chamber. Supporting Republican
Further, the announcement of action on student debt relief will also tailwinds and expectations for significant wins, retirements
be weighed as a motivating factor for younger voters. In all, while we among Democratic lawmakers in this cycle have hit a recent his-
continue to expect that Democrats are likely to lose the House (and torical high, and Republicans are seeing the most candidates
with it, their Congressional majority), prospects for Democrats running for seats compared to recent cycles. Both metrics often
retaining the Senate have materially improved into the fall. This will correlate with a change in control of the House.
have an important market impact in terms of the Biden administra-
tion’s regulatory agenda and confirmation ability for key posts if With expectations high for a Republican victory in the House, it is
Democrats ultimately maintain or expand their Senate majority. worth asking what factors could limit the Red Wave potential.
Given the national political setup, some may be expecting an
A LOOK AT THE RACE FOR THE HOUSE expansive Republican victory along the lines of recent ‘wave’
The clearest opportunity for a change in power in Congress rests elections that saw the party in power lose 42 seats in 2018 and 64
with control of the House of Representatives. Democrats are cur- seats in 2010. Those elections were preceded by an election
rently holding onto a slim five seat majority in an environment where the party that won the majority outperformed and picked
that favours challengers following the 2020 redistricting process up the marginal seats, providing easy targets to the opposition
and notable tailwinds behind Republican candidates. The magic party in the following election. The opposite happened in 2020,
number for a House majority is 218 seats. Looking at a seat-by- when Republicans delivered an unprecedented result of winning
seat analysis, Republicans are currently favoured in at least 213 100% of the seats rated ‘toss-up’ (plus several rated lean Demo-
Congressional districts (seats rated as solid, likely, or lean Repub- cratic/likely Democratic) but fell short of winning the majority.
lican) and Democrats are favoured in 190. The battle for the The Republican ‘out-performance’ in 2020 could cap the ceiling in
majority will likely be decided by the 32 remaining ‘toss-up’ seats. terms of seats Republicans can win this fall. Conversely, for Dem-
Of these 32 seats, 24 are currently held by Democrats and 8 by ocrats to win, they would have to deliver another ‘unprecedented’
Republicans. Republicans flipping just 5 of the 24 Democrat- sweep of the seats rated ‘toss-up.’

Presidential Approval and Midterm Results

Biden fighting history to improve approval rating and limit midterm losses
In cycles where a president’s approval is below 50%, significant House and Senate seat losses have
occurred since 2006 (the 2018 Senate race being an exception, where Republicans picked up two seats).

Approval: Approval: House Senate
Year President Control of Congress
August November Outcome Outcome
1982 Ronald Reagan 41% 43% -26 +1 Status Quo: Split Congress
1986 Ronald Reagan 62% 63% -5 -8 Democratic Congress
1990 George H.W. Bush 74% 58% -8 -1 Status Quo: Democratic Congress
1994 Bill Clinton 39% 46% -54 -8 Republican Congress
1998 Bill Clinton 64% 59% +5 0 Status Quo: Republican Congress
2002 George W. Bush 68% 63% +8 +1 Republican Congress
2006 George W. Bush 37% 40% -31 -6 Democratic Congress
2010 Barack Obama 45% 45% -64 -6 Split Congress
2014 Barack Obama 41% 40% -13 -9 Republican Congress
2018 Donald Trump 41% 40% -42 +2 Split Congress
2022 Joe Biden 44% TBD TBD TBD TBD

Source: Raymond James Equity Research, Gallup “Presidential Job Approval Center” data

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