Election outcomes and how to invest

We believe a Republican sweep represents the most beneficial scenario for the financial services sector, as the GOP would resist efforts to constrain the activities of large financial institutions. Senior leadership at the regulatory agencies (FRB, OCC, SEC, CFPB, and FDIC) have been nominated and confirmed, but a GOP majority would be expected to oppose more stringent regulation and would hold hearings to challenge regulators’ efforts to promote more intrusive regulation. An attempt might be made in a unified Congress under GOP control to release government-sponsored enterprises from conservatorship.

In a divided Congress, the Democratic leadership in the Senate could continue to scrutinize large institutions and nonbank financial corporations. Regulatory agencies would continue to interpret the 2010 Dodd-Frank Act stringently, but new legislation affecting the financial services sector would be more limited. Proposed legislation on credit card interchange competition could advance in the Senate but is unlikely to gain traction in a Republican House. 

Most legislation affecting the US healthcare industry is unlikely to make much headway if either chamber of Congress flips to Republican control. One possible exception may be legislation affecting pharmacy benefit managers. A more active regulatory posture by the executive branch could be negative for the healthcare sector compared to the status quo, but the Biden administration is likely to have its hands full focusing on the promulgation of regulations and may not have sufficient bandwidth to drive additional healthcare regulations. Regardless of the outcome in November, federal legislation governing the commercial sale and use of cannabis seems unlikely in the next Congress if the GOP takes control of either chamber.

A Republican sweep could result in reduced legislative risk for landlords, with less scrutiny of single-family rental operators, potentially spurring the development of much needed additional housing units. Green subsidies for housing and stricter carbon emission rules for commercial real estate also are less likely in this scenario. The legislative push for additional green subsidies and faster carbon emission compliance is likely to slow down under a unified or split Congress. 

The Inflation Reduction Act included an array of provisions to address the impact of climate change and to make investments in renewable energy. The next significant energy bill is likely to focus on legacy energy infrastructure and pipeline-permitting reform, which was promised to Senator Joe Manchin in return for his support for the renewable energy titles found in the IRA. This legislation would attempt to streamline some of the permitting challenges that have plagued the development of energy infrastructure, such as the Mountain Valley Pipeline project. However, the legislation would face significant obstacles. Other energy legislation should be limited in either the Republican sweep or divided government scenario.

A unified Congress under Republican control would result in a larger budget for national defense, with fewer delays and the potential for new funding to incorporate programs on the unfunded priority list. Congress may also be more amenable to international weapons sales, adding to defense company backlogs. Political support for traditional fossil fuel production could encourage more private sector spending in the oil and gas complex, boosting the equipment manufacturers and service providers. 

Support for a defense budget in excess of the president’s 2023 request appears bipartisan, as evidenced by the easy passage of the USD 840 billion National Defense Authorization Act in the House. So, a split Congress should not result in a materially different outcome. The benefits from the Infrastructure Investment and Jobs Act should play out as expected, supporting industrial companies in traditional and clean energy infrastructure, but new infrastructure investments beyond those already envisioned are unlikely.

Traditional technology companies in the software, IT services, and semiconductor areas face few risks regardless of the outcome of the midterm elections. In a split Congress, House Republicans are expected to schedule hearings and could pursue legislation addressing privacy, but the odds of anything substantive passing before the next presidential election are low. The semiconductor industry has broad bipartisan support, so additional support in the form of a CHIPS Act, Part II is possible.

Internet and social media platforms will likely continue to see increased scrutiny over privacy and content concerns, but little actual impact. While both parties opine on the need to regulate these platforms, they view the problem through very different lenses (i.e., bias vs. censorship), which has resulted in a sort of regulatory stalemate so far. We therefore believe a “clean sweep” of both legislative bodies as well as the executive branch is a prerequisite for material changes in regulatory policy. While nationwide broadband coverage is a focus of both political parties, we do not believe the election will impact the industry or the Broadband Equity Access Deployment program deployment in a major way.