The stock market may be signaling Republicans are about to sweep Congress. Investments that would do well under Republicans are edging higher and outperforming those in a hypothetical Democratic portfolio, particularly in the past week, according to Strategas. That could be signaling that the market is sniffing out more potential for Republicans in mid-term elections to regain the Senate, once thought as a long shot, according to Dan Clifton, head of policy research at the firm. Strategas creates Democratic and Republican portfolios to identify investments that have the most to gain or lose, based on the election outcome. The firm uses the two baskets as a diagnostic tool to measure how financial markets view the election. “This basket was giving the Republicans 80% odds all spring and then through the summer it fell, and the Democrats had a better chance of winning,” said Clifton. “The Republicans bottomed out right around Sept. 7 and have been rallying ever since.” Strategas watches the portfolios relative to the S & P 500 and to each other to identify what investors are pricing in about the elections. The Republican portfolio peaked relative to the Democratic one on May 3, the day after the leaked report of the impending Supreme Court ruling on Roe v. Wade. One sector that has been emblematic for the Biden administration has been renewable energy, and those stocks and ETFs have lost ground since mid-September. At the same time, odds for a Republican sweep on Nov. 8 have risen. For instance, the iShares Global Clean Energy Fund fell 4.8% this past week and 23.2% over the past month. Individual solar and other renewable names are also down sharply, like First Solar, which is in the Strategas Democratic portfolio. Republicans have been expected to win control of the House of Representatives, but the Senate was expected to stay in Democratic hands until recently. “For awhile it was 65% for a Democratic Senate, but it’s now 50/50,” Clifton said. Clifton said his portfolios are pointing to a 60% chance of a Republican sweep, while betting markets are at 50/50. The investments in the Democrat portfolio include HMOs and hospitals, in addition to renewable energy. “If the Democrats win, they’ll be overcoming 100 years of history, and they’re going to claim they have a mandate,” he said. “They’re going to do the child tax credit, Medicare expansion and renewable energy.” Both parties would increase defense spending, but Republicans may do more but be more…
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