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Felix Wintle
Fund Manager
The expected ‘Red Wave’ turned out to be more of a ‘Red Ripple’ as the Republicans did not fare as well as expected in the Midterm elections. This surprised both Republicans and Democrats as the expected losses came in much lower from the Democrat side. The chart below shows the expected number of seat losses in the House of Representatives based on the President’s approval rating. This indicated a loss of around 40 seats, but it came in at 12 which is a significant improvement and one of the best results ever for a first term President.
So, what happened? There were many reasons that a big Republican win was expected, but one of the most important was the rapid rise of inflation. Inflation’s rise is felt most keenly by consumers at the petrol pump and the price of gasoline had been rising significantly. However, in the last few months the price of gasoline has fallen from $5 per gallon in June to $3.80 today, and this has reduced the impact that the inflation narrative has had on voters.
This fall in inflation has certainly helped the Democrats, and the chart below shows how the President’s approval is tied to this input.
But there are some subtler implications of recent policy changes. The overturn of the Roe v Wade ruling which addresses the abortion issue has been very divisive and unpopular in some areas of the country. Some states saw the numbers of women registering to vote outnumbering men by 2 or 3 times, and it is likely that it was this issue that drove that. This has resulted in a big swing towards the Democrats. It was Donald Trump’s appointments that sowed the seeds of this ruling, and this has reflected poorly on him and the candidates that support him, who all performed badly in the midterms.
Trump still has his supporters of course but it does look like his star is finally waning. Ron DeSantis has emerged as the most likely Republican Presidential candidate after his big win in Florida. What this vote has shown is that America really is split 50/50, Red and Blue. For those ‘purple’ or swing states, the count is very close and hard to call - for those we have still no conclusion.
This standoff tends to be positive for markets, as the below chart shows:
When Congress is split, the green bar, S&P 500 returns are their best. And when one or other party has full control, returns are at their worst.
The other interesting data point is that there hasn’t been a negative 12-month period post the midterms at all in the modern era. The last time there was a negative return was in the 1940s, so this bodes well for investors and as the below graphic shows, the average return one year after the midterms is 15%.
WARNING: All information about the VT Tyndall North American Fund(‘The Fund’) is available in The Fund’s prospectus and Key Investor Information Document which are available free of charge (in English) from Valu-Trac Investment Management Limited (www.valu-trac.com). Any investment in the fund should be made on the basis of the terms governing the fund and not