Australians await the Butterfly Effect fallout from the US mid-terms. But until things are clearer, investors shouldn’t get in a flap. Pic: Getty Images.<\/p>\n
Next Tuesday\u2019s US Congressional mid-term elections are likely to influence global markets, including ours. But how?
\nA Democrat \u2018clean sweep\u2019 of both houses could weigh on US shares and make Donald Trump\u2019s behaviour even more unpredictable.
\nUltimately, our economy will be most affected by Trump\u2019s policy on Iran and the oil price impact<\/p>\n
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When a butterfly takes flight in the Amazon, it supposedly causes a cyclone on the other side of the world. The same, too, applies to voters in the swing state of Ohio gently flapping their ballot papers next Tuesday.<\/p>\n
Depending on the outcome, the US midterm elections could reshape the nation\u2019s economy and foreign policy \u2013 and impact everyone.<\/p>\n
That includes moth-eaten Australian investors battling insipid local conditions.<\/p>\n
The hard part is gleaning whether the Butterfly Effect will manifest in howling winds of change, a subtle zephyr or a more becalming influence.<\/p>\n
Betting agencies favour a clean Democrat sweep of both the House of Representatives and the Senate.<\/p>\n
The non-partisan Cook Political Report expects the Democrats to regain control of the House of Representatives, with the Senate race hanging in the balance.<\/p>\n
The US share market has priced in the Donkeys (Democrats) prevailing in the lower house, with the Elephants (Republicans) retaining control \u2018upstairs\u2019.<\/p>\n
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Sectors to watch<\/p>\n
RBC Capital Markets believes the financial, energy and utility sectors are most likely to be influenced by the result.<\/p>\n
These industries are most positively affected by an Elephant stampede of both houses \u2013 maintaining the status quo \u2013 while healthcare would benefit most from a Democrat sweep.<\/p>\n
\u201cTech is also a sector with a positive tilt in a Republican sweep,\u201d the firm says.<\/p>\n
\u201cOverall, our US analysts are modestly positive in a Republican sweep, modestly negative in a Democratic sweep, and neutral in a split.\u201d<\/p>\n
The Europe-based Amundi Investment Institute says a Democrat sweep would raise the risk of a more interventionist agenda, with further stimulatory tax cuts becoming less likely.<\/p>\n
\u201cAs a result, the fiscal stance is likely to remain broadly neutral to mildly restrictive over time, with elevated deficits and debt still providing the underlying backdrop.\u201d<\/p>\n
It\u2019s well known that mid-terms drag on the market.<\/p>\n
RBC says that during Republican presidencies stocks tend to rise, regardless of the Congress\u2019s balance of power.<\/p>\n
But annual returns are stronger when either the Elephants or the Donkeys control both chambers.<\/p>\n
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Different nation, same concerns<\/p>\n
To gauge the pulse of the nation, RBC\u2019s analysts pored over the contents of political ads, town hall rallies, interviews and other video content.<\/p>\n
It\u2019s no revelation that inflation, housing and energy costs have dominated US voter concerns \u2013 sound familiar? \u2013 along with the Iran conflict.<\/p>\n
But \u201cwe were a little surprised to hear a lot about healthcare, specifically drug prices and insurance-related issues, and note this was central to the broader affordability discussion,\u201d RBC says.<\/p>\n
The analysts also picked up \u201cbroader vibes\u201d.<\/p>\n
\u201cIn the Senate videos, we noted an emphasis on bipartisanship and working together to get things done, plus anti-big business, anti-big tech rhetoric on the Democrat side.<\/p>\n
\u201cIn the House [videos], data centre\/AI discussion also ranked fairly highly.\u201d<\/p>\n
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US-oriented stocks in the firing line\u00a0\u00a0<\/p>\n
Bluescope Steel (ASX:BSL)<\/a> this week upgraded earnings because tariffs are favouring the steel maker\u2019s US facilities. Management will be Don-ning their MAGA caps and rooting for the Elephants.<\/p>\n With most of its revenue sourced from the US, CSL (ASX:CSL)<\/a> has been navigating tariff and drug pricing issues. With a gentler Democrat stance emitting from Capitol Hill, it\u2019s Donkeys all the way.<\/p>\n Global logistics provider Brambles (ASX:BXB)<\/a> broadly benefits from the \u201cAmerica First\u201d push. But in the US, it\u2019s been held back by soft consumer demand and unrelated pallet-repair capacity issues.<\/p>\n The bipartisan wariness about data centres and AI is being replicated elsewhere, including here.<\/p>\n This suggests investors should be cautious about the the marked-down DC pure-play NextDC (ASX:NXT)<\/a> and the global, DC-heavy property trust Goodman Group (ASX:GMG)<\/a> .<\/p>\n