Harold Wilson’s adage is worth remembering as we enter the final week of the 2022 midterm election campaign. The past six months have been a roller-coaster of emotions for adherents of both political parties. As the year got underway, Republicans were expected to recapture control of both chambers of Congress. A subsequent Supreme Court opinion eliminating the constitutional protection for abortion increased voter turnout in primary elections, raising the possibility that this year’s midterms would upend conventional wisdom and allow Democrats to preserve their narrow majority in the Senate.

The ground now appears to have shifted again. While the GOP advantage in many public opinion polls still falls within the margin of error, Republican candidates appear to have reasserted their leads in closely contested congressional races. Our colleagues in the UBS US Office of Public Policy revised their forecast for the election outcome earlier today, reducing the probability of a Democratic majority in the Senate to a toss-up. Republicans are still expected to capture a majority in the House of Representatives.

In that context, it is worth asking whether a narrow Republican majority in the Senate next year would have a material impact on investment outcomes through year-end. The short answer is probably not. Financial markets are focused primarily on monetary policy and whether the Federal Reserve will begin to ease the pace at which it has tightened credit conditions.

All too often, investors allow their political biases to affect portfolio allocation decisions. While elections do have consequences, a long-term financial plan should not be abandoned based solely upon the outcome of a single election. Whether or not we have a divided Congress in 2023, we are certain to have a divided government. A narrow Senate majority, whether Republican or Democrat, will require some degree of bipartisan support to pass legislation and garner a presidential signature for enactment.

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