Stock markets started pricing in the outcome of the hotly contested House and Senate seats. Even though polls indicated that the mid-term elections would favor the Democrats, exchange-traded funds are still at odds with the results.
The energy sector (XLE) closed at a new high near $70.00 last week. Oil prices continued to rise after Brent and WTI crude prices jumped. Last Thursday, Brent crude prices traded to a six-month high. On the weekend, the U.S. government indicated greater odds that it would strike Iran again.
The XLE ETF would fall if the Republicans lost in the midterms. Stock markets would price in higher odds of Iran allowing more shipping traffic in the Strait of Hormuz.
The biotech ETF (XBI) slumped from its summer highs, closing below $150. The Republicans usually benefit the ETF. Democrats often add regulations that slow drug development.
The consumer discretionary (XLY) is trending lower, although it bounced back recently. Investors pivoted out of the technology sector (XLK) and into the beat-up XLY ETF. Consumers will continue to struggle with inflation, led by high oil prices. A GOP win would send XLY lower on expectations that energy prices remain high.
The communications ETF (XLC) is neutral to the midterms. SpaceX’s (SPCX) entrance into the landline telecom sector hurt shares of Verizon (VZ). Alphabet (GOOGL) and Meta Platforms (META) might outperform the market regardless of the upcoming elections.
