U.S. stocks are likely to enjoy an impressive rally this week, as Republicans look set to take the Senate

On Tuesday, U.S. voters will elect representatives for all 435 seats in the House of Representatives and 35 seats in the Senate.

There are also a range of other positions like local governors and mayorships on the table.

Democrats may prepare for a watershed loss. However, investors are expecting a rally of U.S. markets.

Nigel Green from the deVere Group believes Republicans could take at least one chamber in these elections.

The deVere Group is one world’s largest independent financial advisory, asset management and fintech organisations.

“History teaches us that a sitting president’s party sheds some level of power during these elections, splitting the executive and legislative branches of the U.S. Government.”

“This typically results in gridlock as lawmakers are unable or unwilling to agree on major legislation, meaning that substantial laws are either not approved or significantly reduced in scope and impact,” Mr Green said.

U.S. President Joe Biden has urged people to vote Democrat amid rising inflation and cost of living pressures.

In September, the price of basic goods and services increased by 8.2 per cent when compared to the same time last year.

Mr Green said some sectors will be more impacted than others after Tuesday’s vote is complete.

“The status quo usually means that corporations can push on with their plans and investments without the risk of everything being upended by new laws and requirements.”

“Reforms to legislation on big tech can be expected to come to a halt due to the gridlock, which “represents upside for the tech stocks,” he explained.

Who is likely to be affected?

A Republican wave across the U.S. could be a win for major pharmaceutical and biotech stocks, which have already capitalised during the Covid-19 pandemic.

Democrats are pursuing a bill to lower prescription drug prices. Biden said the price of prescription drugs has been out of control for years.

“We pay the highest price for prescription drugs than anywhere in the world.”

“The prescription you have from a drug manufacturer in the United States you get at the local drugstore, you can get in a plane and fly to Paris, you can get the same exact drug for less—every other major capital in the world,” President Biden said.

Wall Street’s energy stocks could see gains if Republicans take either the House of Representatives or the Senate.

If this is the case, a Democrat-led windfall tax on oil producers could be blocked.

“I’ve released millions of barrels of oil from our Strategic Petroleum Reserve, keeping the price down. It’s down about $1.25 and going down,” the President said, as he conceded prices need to drop further.

The oil crisis has been spurred by the war in Ukraine, as major economies like the U.S. and Britain sanctioned Moscow for its so-called ‘special military operation’.

Russia is the world’s second largest producer of oil. However, the west’s sanctions have cut Moscow from the global supply chain, and sent oil prices skyrocketing.

In addition, the Organisation of Petroleum Exporting Countries and its allies (OPEC+), recently made the decision to cut its daily oil production by 2 million barrels.

The OPEC+ group is primarily run by Russia and Saudi Arabia. President Biden said “there will be consequences” over the recent decision.

The reduction has impacted around 2 per cent of global oil demand.

Oz Sultan is a former Republican candidate, who said U.S. markets will respond favourably if there is a sea of red on Tuesday.

“What we’ve seen from the Biden White House is an approach to green energy, which isn’t necessarily sensible.”

Midterm elections have previously heralded positive stock market performances.

However, there are a suite of inflationary pressures and cascading events including the pandemic, conflict in Ukraine and global supply chain crunch, which investors are keeping a close eye on.

How can investors avoid the worst of it?

The U.S. President typically seeks to use the results of the midterms to boost the economy in the third year of their presidency, as part of their bid to get re-elected in the following year.

However, a divided government will make it harder for President Biden to pass his legislative agenda.

Mr Green from the deVere Group said investors should not underestimate the importance of a trusted investment strategy.

“Ensuring your portfolio is properly diversified is one of the fundamentals of successful investing.”

The midterm report card is set to alter the course of U.S. domestic politics as the 2024 Presidential election looms large.

However, President Biden said there is also something else at stake: democracy itself. 
 
“I’m not the only one who sees it. Recent polls have shown that an overwhelming majority of Americans believe our democracy at—is at risk, that our democracy is under threat.”

“They too see that democracy is on the ballot this year, and they’re deeply concerned about it,” he said.