Will Stocks Rise After the U.S. Midterms? Two Hurdles: 'Election Disputes and Escalation' [Click e-Market]

Rebound expected after U.S. midterms
Delay in determining congressional majority poses a risk
Watch for renewed strikes on Iran and energy supply disruptions

The day voting ends and the day markets feel reassured are not necessarily the same. That is what investors should keep in mind ahead of the U.S. midterm elections. For now, expectations are tilting toward a stock market rebound as political uncertainty eases after the election. However, analysts say two potential obstacles remain on the road to a recovery: disputes over the election results and a renewed escalation of the war with Iran.

Hana Securities made this assessment ahead of the U.S. midterm elections, which will be held on November 3 local time. While it expects stocks to recover and interest rates to stabilize after the election, it noted that easing political uncertainty would not end the debate over the profitability of artificial intelligence (AI). On October 30, the Philadelphia Semiconductor Index plunged 7.20% in a single day. Concerns have grown over when the massive sums being poured into AI will generate returns.

The first potential obstacle is a prolonged contest, with candidates refusing to accept the results even after the votes are counted. If recounts and lawsuits continue in closely contested districts, it could take time to determine which party controls the House and Senate. The situation could become more complicated if the seats subject to litigation are numerous enough to shift the balance of power in Congress.

Such controversy has already emerged in the Alaska Senate race. The U.S. Department of Justice argued that a candidate with the same name could affect the outcome and requested that certification of the results be blocked if the Republican incumbent loses. The related lawsuit was dismissed on November 1 local time, but the Justice Department said it would appeal.

Kim Doo-eon, a researcher at Hana Securities, said, "The president does not have general authority to unilaterally invalidate federal elections nationwide. The key issue is how state-level recounts and lawsuits, as well as each chamber's review of its members' seats, could affect the determination of the majority party." He added, "We maintain our outlook for a stock market recovery if disputes remain limited to a few closely contested areas. But if determining the majority party is delayed and the composition of Congress and the handling of the budget are disrupted, investors should slow the pace of additional purchases."

The second potential obstacle is a renewed escalation of the war with Iran. The risk of conflict with Iran will not disappear just because Election Day has passed. Iran and Qatari mediators continued negotiations for three consecutive days through November 1 local time. The United States has also said it favors a diplomatic solution, but has not ruled out further military action after the election.

Investors will be particularly sensitive to oil shipping routes and energy facilities. If renewed airstrikes and retaliation spread to the Strait of Hormuz or energy facilities, supply concerns could drive oil prices higher. Kim said, "If oil prices, inflation expectations, and the dollar all rise together, investors should also prepare for the possibility of stocks and long-term bonds weakening at the same time."

Kim emphasized that he would maintain his strategy of taking a long-term view and steadily accumulating "stocks of the future." However, he said that with uncertainty high, now is the time to adjust the pace of purchases. Investors should maintain their core holdings while making additional purchases in stages. "In South Korea, we prioritize semiconductors, IT hardware, and power infrastructure, where orders, earnings, and cash flows can be confirmed. Overseas, we select companies that can translate AI investment into revenue and cash generation," he said. "Easing political uncertainty alone will not resolve the debate over the profitability of AI investment."

This content was produced with the assistance of AI translation services.