Page 20 - ISQ Outlook 2023

INVESTMENT STRATEGY QUARTERLY

Performance Following Midterm Elections

Average market performance has been positive in the months following midterm elections.
30% 100%
95%
25%
90%
85%
20%
80%

15% 75%
70%
10%
65%
60%
5%
55%
0% 50%
+3 months +6 months +12 months +24 months
Average Performance Following Midterm Election (le side)
% of Time Positive (right side)

Source: Factset, data from 5/11/1946-6/11/2020

DIVIDED CONGRESS: FISCAL BATTLES continue to caucus with Democrats), but her relative power and
OR BIPARTISAN BREAKTHROUGHS? the power of Senator Manchin (D-WV) will be slightly diluted on
Party power in the 118 Congress will be divided among the two certain issues, giving Senate Majority Leader Chuck Schumer
th
chambers, with Republicans retaking control of the House of Repre- (D-NY) more room to manoeuvre on legislative priorities or confir-
sentatives during the 2022 midterm elections and Democrats mations. However, the loss of the House makes the vote margin
retaining the Senate. Overall, this dynamic produces a stronger less important relative to 2022 given that any additional pursuit
incentive to pass legislation on a bipartisan basis and on compro- of reconciliation legislation will be off the table with the Demo-
mise issues, which we view as an overall market positive result. crats’ loss of the House. Committee assignments will tilt in
However, there is also a high likelihood of gridlock and elevated Democrats’ favour, allowing the party to advance confirmations
headline risk around must-pass legislation. In the House, the GOP and legislation out of committee without additional procedures
will govern with a slim 222-seat majority, which will prove chal- on the Senate floor that take up valuable legislative time. The
lenging for the Speaker of the House in gathering the necessary 51-seat majority may be fleeting for Democrats as they face a
support for bills. The small majority could give individual lawmakers tough map in 2024, where they will be defending 23 seats com-
significant leverage in extracting concessions during negotiations or pared to 10 for the Republicans.
in stalling legislation and could be further complicated by House
vacancy trends and proxy voting reforms that heighten the impact OPPORTUNITIES FOR COMPROMISE AND
of lawmakers not being able to vote on the House floor.
CONFLICT IN THE 2023 LEGISLATIVE AGENDA
Following Senator Raphael Warnock (D-GA)’s victory in the The debt limit, China, antitrust, cryptocurrency, and oversight will
Georgia runoff, Democrats will command a 51-seat majority in likely feature as core legislative themes in 2023. China policy will
the Senate, boosting their ability to confirm officials for key regu- serve as a key area for bipartisan compromise with a slight tilt
latory and judicial posts. Senator Kyrsten Sinema (I-AZ) will be toward more hawkish policy decisions. We expect that Ukraine-re-
one to watch given her party switch (expectations are she will lated policy and spending will broadly continue to see bipartisan

20