One poll this month found record interest in the 2022 midterm elections, which are now less than two weeks away.
Analysts focused on key sectors are among those paying close attention to the midterms, as Democrats are expected to lose control of at least one chamber of Congress after spending two years in charge of both chambers as well as the White House.
Below are some forecasts from these analysts for what a divided Washington could mean the energy industry XLE, +1.82%, the financial sector XLF, +1.48%, cannabis players MSOS, -1.17%, healthcare XLV, -0.34% and tech XLK, -0.24%.
Betting market Predictit currently gives a 90% chance for Republicans winning the House and about a two-in-three chance for the GOP getting control of the Senate.
Republican campaigns have seized on raging inflation, including elevated prices for gasoline RB00, +2.41% and other fuels, while Democrats have focused on issues such as abortion rights.
Financial sector: bank mergers, a market rally
Banks KBE, +1.42% have “only modest policy exposure to the midterms because President Biden already has confirmed the top financial regulators,” said Jaret Seiberg, an analyst at Cowen Washington Research Group, in a note Wednesday.
However, there still could be some impact, such as a possible rise in mergers and acquisitions among regional banks KRE, +1.40%.
“Republican control of the House should be a positive for regional bank mergers. A GOP chair of House Financial Services will give Republicans the ability to provide political cover for regulators to approve mergers,” Seiberg wrote.
Ed Mills, Washington policy analyst for Raymond James, stresses that his team’s research shows that since 1946 the S&P 500 SPX, +0.18% stock index has always been higher 12 months after a midterm election.
“The most important thing for the midterms and the markets is that the midterms happen,” he said.
“100% of the time, 12 months after the midterms, the S&P 500 is up — and most of that move is in a three- to six-month period after the midterms.”
Related: A strong market rally could be just weeks away if the U.S. midterm elections can put anxious stock investors at ease
And see: U.S. stocks rise 15% on average one year after midterms, analysts find
Mills added that the Securities and Exchange Commission has had an aggressive agenda, and it gets its funding from Congress, so the agency could see some restrictions on its activities with Republicans in power.
Read more: Republican lawmakers likely to target ‘woke capitalism’ after the midterm elections
Energy: Domestic production, EV issues and more
“You will see Republicans in Congress pushing the administration for more domestic production of energy,” Mills also said.
But the Raymond James analyst emphasized that he has doubts about how much support there would be from the Biden administration for this push. President Joe Biden — who has repeatedly talked up electric vehicles — would be able to veto any legislation promoting fossil fuels CL00, +1.96%.
From MarketWatch’s archives (August 2021): Auto industry’s future ‘is electric, and there’s no turning back,’ Biden says, as he touts EV goal
The most important issue in the near term for the energy sector, according to Mills, is whether Democratic Sen. Joe Manchin’s permitting package gets enacted after foundering in September. The moderate West Virginia lawmaker is aiming to speed permits for natural-gas NG00, +0.02% pipelines and other energy projects.
“But I think it’s more of a lame-duck issue than a next Congress issue,” Mills added. That’s a reference to the view that Manchin’s plan is more likely to become reality during the period between the midterms and the start of the 118th Congress in January.
Critical minerals REMX, -1.23% look set to get attention, according to Tobin Marcus, senior U.S. policy and politics strategist at Evercore ISI. There is bipartisan interest in reducing U.S. reliance on China for such minerals, which are key to EVs and other clean-energy industries.
“That is a little bit of a dark-horse area for bipartisan cooperation that isn’t incredibly heavily on the radar yet,” Marcus told MarketWatch.
The Evercore analyst also said there could be action next year on requirements for North American battery sourcing in Democrats’ big climate, healthcare and tax package, dubbed the Inflation Reduction Act. The package included a revamped $7,500 tax credit for EVs, but South Korean auto maker Hyundai 005380, +0.93% and other car companies have objected to the credit’s sourcing requirements and would benefit from delays for those rules.
“It’s possible that we’ll start to see more of a bipartisan effort to push back some of those deadlines,” Marcus said.
Related: Here’s how Democrats’ new EV tax credit that leaves out Hyundai cars is affecting Georgia’s key Senate race
Healthcare: Lots of headlines, one ‘juicy target’
Republicans are likely to continue criticizing the Inflation Reduction Act’s provisions aimed at lowering drug prices, arguing that they will lead to less innovation and fewer cures getting to market, but Biden and his fellow Democrats won’t have any interest in rolling back such provisions, according to Marcus.
“So I think that’s mostly the landscape in 2023 — with some headlines, but not a lot of genuine risks to the sector,” the Evercore analyst said, referring to the healthcare sector.
Pharmacy-benefits managers might face trouble, however. There could be bipartisan bills targeting mental health and other areas where there’s some agreement, and Republicans in particular will want to make sure proposals are paid for, so there will be a search for ways to pay for new healthcare spending, Marcus said.
“PBMs will be a pretty juicy target in that search,” he told MarketWatch.
The Evercore analyst also said he’s watching for bipartisan legislation during the lame-duck session that would at least blunt scheduled cuts for Medicare payments to physicians and labs.
Cannabis: Banking bill may score OK just before new Congress gets to work
Biden in early October directed his administration to review how marijuana is classified as a schedule 1 controlled substance, a category that also includes heroin and LSD.
If his administration tries to move quickly on descheduling pot, Republican lawmakers are likely to try to use legislative maneuvers to disrupt that effort, according to Mills, the Raymond James analyst.
Meanwhile, a bill that seeks to protect banks that work with the cannabis industry has its best shot at finally getting passed by the Senate during the lame-duck session, Mills reckons.
“If that does not get done, I think it’s a net negative for cannabis,” he said.
From MarketWatch’s archives (April 2021): There’s no ‘immediate path forward’ in Senate for cannabis banking bill, analyst says
Seiberg, the Cowen analyst, said his team thinks Congress is likely to pass this measure, known as the SAFE Banking Act, during the lame-duck session, but it’s “not guaranteed” and they only give it a 60% chance.
Related: Cannabis legalization goes up for a vote on Nov. 8 in five states
Tech: Censorship talk, privacy progress
Republicans don’t look set to deliver a “something for everybody compromise that lets everyone say they did something about Big Tech,” said Marcus, the Evercore analyst.
Instead, he sees the GOP focusing next year on issues such as content moderation.
A “Commitment to America” agenda that House Republicans rolled out in September ahead of the midterms appears to support that prediction. It promises that the GOP will “fight Big Tech’s censorship.”
Marcus added that there could be GOP support for data-privacy legislation, given how that already has been a bipartisan issue.
“That might be something that leadership is willing to bring up next year. I doubt that’s going to be a huge blow to the industry in the way that some of the antitrust stuff would have been,” he said.
Related: As Congress flounders in Big Tech regulation push, the FTC isn’t waiting around
And see: Hearing on data-privacy bill reveals contours of latest best hope for tech regulation