Page 19 - ISQ Outlook 2023

INVESTMENT STRATEGY QUARTERLY

Compromise And Conflict On Capitol Hill

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

We view the outcome of the 2022 midterm election as a
positive result for the market. The markets have histori-
cally favoured split government as it reduces the policy Since 1946, the S&P 500 has been positive 12
uncertainty coming from Washington. Additionally, we months following a midterm election.
would highlight that since 1946, the S&P 500 has been
positive 12 months following a midterm election. As for
the election results, Democrats exceeded expectations Turning attention to the 2023 agenda, we would focus on three
things—must-pass legislation, potential areas of bipartisan compro-
and expanded their Senate majority by one vote (51-49),
mise, and Senate confirmations (which have a significant impact on
which will have a significant impact on confirmations by the regulatory agenda of the Biden Administration). We will also be
the Biden Administration. Republicans captured a monitoring external factors, especially the increased attention on
majority in the House, but their nine-seat pickup was geopolitical risk, the monetary policy decisions of the Fed, and
below the historical average of 23 seats for the opposition the 2024 presidential election (in U.S. politics the next election
starts the day after the last election is finished). As for the must-
party in the last 40 years. The slim House majority for
pass legislation, the debt limit fight and the annual government
Republicans will be made even more difficult as Republi- funding requirements will receive the most market attention and
cans are expected to scrap proxy voting, which was be the source of brinkmanship. We expect a ‘tough on China’ Bill
implemented by Democrats during the COVID pandemic. to lead the list of potential bipartisan compromises. The confir-
mation of regulatory picks that seek aggressive agendas will have
This will once again require members of the House of Rep-
some market impact, but we expect the reaction to be muted by
resentatives to be physically present for their vote to be recent court rulings that have sought to check the power of these
counted, adding uncertainty to the outcome of floor votes. regulators.

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