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Midterm Elections: Our Best Advice for Your Portfolio

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Election Day is day is just around the corner, and the national anticipation already feels greater than in any other midterm cycle in recent memory. This anticipation is even gripping Wall Street, where investors are awaiting the results and preparing for Congress to take new shape.

The makeup of Congress affects investors because it defines what policy is likely to come. Sure, much of this policy deals with social or cultural issues that will not have a material impact on the bottom lines of American companies, but as we have seen quite recently, policy can also take the shape of market-moving new laws that do directly affect businesses.

Take the 2017 tax cuts, for example. These rule changes, which were enacted by a majority Republican Congress and approved by the Trump White House, reduced the tax burden of U.S. corporations and fueled additional earnings growth this year.

Perhaps more tax cuts are to come if the Republicans maintain control of Congress. But if history and the latest polls tell us anything, the Democrats are likely to win back at least the House of Representatives, splitting the legislative branch with two years left in President Trump’s first term. Heck, Democratic initiatives to rally the vote and empower Congressional challengers might even result in an upset victory in the Senate.

We will not be sure of these results until the polls close and the votes are tallied on Tuesday. In the meantime, we are left with uncertainty—Wall Street’s least-favorite word.

Navigating uncertain times calls for a prudent strategy, so with that in mind, let’s review a few tips for investors looking to best position themselves for profits ahead of, and after, the midterm elections.

Keep a Cool Head and a Clear Plan

It goes without saying that the American political environment is extremely tense right now. Some might even argue that the nation and its two major parties are more polarized than ever. New leaders, new movements, and new points of political importance have driven a wedge through the populace, and that has caused an understandably loud set of public debates.

It is important to remember that, regardless of where one finds themselves on the political spectrum, our government will continue to trudge along, in one form or another. For investors, that means it is prudent to keep a level head and prepare for all possible outcomes.

History’s most successful investors often preach about the power of controlling one’s emotions. This becomes an especially vital investing tip when politics get involved.

I am obviously not suggesting that investors shouldn’t participate in the political process. Voting is a civic duty and voicing your own opinion is crucial way to contribute to society. If you feel so inclined, get out there and volunteer, knock on doors, show up for town halls, and stick whatever signs you might like in your front lawn.

But always remember that outcomes are outcomes—and they will impact you, even if they are not the ones you personally hoped for. If it becomes clear that policy might shift in a certain direction when midterm results are announced, you need to be ready for that. Keep your head cool and your plans clearly defined.

More . . .


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Mind the Platforms

As mentioned, uncertainty is still lingering in regards to what the makeup of Congress will be following the midterms. However, there are a finite amount of possible outcomes, and we can do some pretty accurate guesswork on where these outcomes might lead us based on the policy platforms of the two parties.

Republicans have already shown their desire to keep cutting taxes, as the GOP-led House just recently passed “Tax Reform 2.0,” a new set of reforms geared toward reducing tax burdens for individuals. Democrats, on the other hand, continue to campaign on promises of healthcare reform and higher wages, among other things.

Neither party will have an easy time pushing their preferred policies through if Congress does split, however. The national legislature has been historically inefficient in recent years, and with the aforementioned polarization ratcheting up on a daily basis, it seems unlikely that Republicans and Democrats would find anything to agree on.

But that might not be exactly the case. In fact, many on Wall Street are starting to grow hopeful that a bipartisan deal focused on infrastructure spending might become a priority of the post-midterm government.

The Democrats have added strong language related to infrastructure rejuvenation to their official party platform, and President Trump and other GOP leaders have expressed interest in a major infrastructure package for some time. If this does come to fruition, American businesses that contract with the government, create raw materials, or participate in construction are all likely to benefit.

Remember the States

It can be easy to forget that the upcoming midterms are not just federal elections, unless of course you live in a state with a hotly-contested gubernatorial race. State and local elections are less likely to influence the full-scale fiscal policy that would reach Wall Street, but that certainly does not mean investors should ignore them.

The big things to watch are ballot initiatives, specifically those that can affect state and local economies. The obvious presence here are the seven ballot initiatives that relate to marijuana, which could open a number of brand new markets for the substance around the country.

Pot stocks have been all the rage this year, and part of the excitement over these companies is the potential for growth in the United States. Legalization is an important step in that growth, and that means the midterms will have something to say about this hot new industry.

How Midterm Elections Could Grow Your Portfolio

After the results are announced, the stock market will have a distinct reaction to the results. Each possible outcome will likely spark buying sprees in certain sectors, based on the platforms of the winning party.

Our research team has created a special report that explores what that will look like for each congressional scenario. More importantly, it reveals two high-quality stocks we predict will soar for each possible election result.

Midterm Profit Strategies: Zacks’ Top Trades for Each Election Outcome offers our best advice for targeting maximum gains after the winners are announced. Plus, you’ll also learn about our favorite marijuana stock we believe will benefit from the seven states voting on cannabis initiatives.

Just before the 2016 presidential election, we released a similar report. Our recommendations crushed the market with gains of +53%, +70%, +71% and +83% in the months following the election.1 This year's returns could be even bigger.

The Midterm Profit Strategies report is only available until Sunday, November 4.

With less than a week until Election Day, now is the time to get started.

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Good investing,

Ryan McQueeney

Ryan McQueeney runs Zacks Income Investor portfolio service and hosts our daily live web show, Free Lunch. He also creates and edits a wide range of content for, including articles for the "Stocks in the News" blog section and two finance-focused podcasts.

¹ The results for the trades listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors.

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