Wall Street set for a boost whoever wins the midterms: deVere CEO
US stocks are on course for a powerful post-election lift whatever the outcome of Tuesday’s midterms, with the S&P 500 likely to shake off its months-long correction and push towards fresh record highs, predicts the CEO of deVere Group, one of the world’s largest independent financial advisory organisations.
The comments from Nigel Green come as Wall Street strategists increasingly argue the correction underway since June is entering its final phase, with a recovery likely once the election and other near-term pressures have cleared.
He says: “Whoever wins on Tuesday, we expect the S&P 500 to get a meaningful boost once the votes are counted.
“Political uncertainty has been one of the heaviest weights on US equities this autumn, and a result, any result, lifts a big part of it.
“Our view is that the correction has already done most of its work. Beneath a fairly calm index, plenty of individual stocks have had a brutal few months.
“When the fog clears, money that’s been parked on the sidelines is likely to flow back in, and we believe it’ll spread well beyond the handful of tech giants that carried markets earlier in the year.”
The S&P 500 closed last week at 7,580, less than 3% below its October record. History offers encouragement: the index has gained around 17% on average in the 12 months following a midterm vote.
Republicans currently hold both the House and the Senate. Forecasters favour Democrats to win the House, while the Senate remains finely balanced.
The deVere CEO continues: “The polls point to Democrats taking the House, with the Senate too close to call. A split Congress has traditionally suited markets well, because it slows sweeping new legislation and gives companies a steadier runway to plan.
“If Republicans hold on to both chambers, investors will price in continuity on tax and deregulation, which is supportive in its own right.
“Either way, we think the direction of travel for equities is likely higher.”
Near-term turbulence remains possible. Close races can take days to call, and markets may stay jittery in the meantime.
Nigel Green says: “Midterms tend to be choppy going in and much kinder coming out.
“Some volatility in the days after the vote wouldn’t surprise us at all, and we’d see it as part of the clearing process.”
Liquidity is the other big pressure point. Longer-dated Treasury yields have climbed more than 100 basis points since February, energy costs are elevated, and the Federal Reserve under Chair Kevin Warsh is firmly focused on getting inflation back to 2%, though it has raised rates only once since he took office.
“Borrowing costs have jumped this year, and that’s been a drag, so we’re monitoring that closely.
“But the US economy is running hot in nominal terms and is absorbing huge amounts of capital. If markets wobble hard after the vote, we believe the Fed is likely to soften its tone, and that would add real fuel to a rebound,” explains the deVere chief executive and founder.
AI, with concerns over financing costs, capital availability, and local resistance to data centres is also expected to intensify over the coming weeks before easing.
He adds: “The worries around AI spending are genuine, and they may get louder before they fade.
“Yet the sheer scale of investment going into AI shows where corporate America sees its future. Once the current wave of debt issuance is digested, we think the sector’s foundations look solid.”
The impact will reach far beyond Wall Street and American shores.
US companies make up roughly two-thirds of global equity benchmarks, meaning Wall Street’s direction shapes pension funds, savings and investment portfolios worldwide.
“A firmer US market typically lifts confidence and risk appetite across Europe, Asia and emerging economies,” notes Nigel Green.
“It also makes it easier for companies everywhere to raise capital, hire and invest. A broader American recovery, led by more than a few mega-caps, would be healthier for the global economy than anything we saw in the narrow rally earlier this year.”
He concludes: “Election nights are noisy. The six months that follow are usually far more telling, and we believe this cycle could deliver one of the more rewarding stretches for long-term investors in recent years.”