| We often attempt to analyze available data to give us clues about the stock market’s direction. This week we will let the stock market be our guide. With the midterm elections right around the corner, how is the stock market handicapping the outcome? As voters have shifted their focus back to crime and inflation, the odds have flipped in favor of Republicans. For the first time since early August, betting odds predict a greater than 50% chance of Republicans winning both the House and Senate. Perhaps more interestingly, we have seen the equity market even more aggressively price in a Republican sweep. Strategas Research Partners constructed two portfolios – one with stocks more likely to do well if Republicans controlled Congress, the other with stocks more likely to do well if Democrats controlled Congress. For example, a Republican Congress would likely create a more favorable environment for the distribution and transportation of fossil fuels. Energy names like ConocoPhillips are held in the Republican portfolio. Overall, this portfolio has outperformed the Democratic portfolio by nearly 5% since September 7. Betting odds and equity prices are clearly not an exact science when predicting election outcomes. That said, we thought the correlation between betting odds and the two stock portfolios mentioned above was noteworthy. Momentum appears to be building in favor of Republicans as we move toward November. |
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