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What stock investors should watch in the midterm elections, from cannabis to technology

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Next week’s midterm elections could be a defining moment for stock investors, with most polls pointing to Republicans winning at least the US House of Representatives and possibly the Senate, ending Democrats’ control of the legislative branch and potentially ushering in a period of stalemate.

This is not necessarily a bad thing for stocks as such scenarios tend to maintain the status quo and reduce uncertainty. However, for specific areas such as health, energy and technology, shaping the next Congress will be key to determining their path forward.

Republicans also have a chance to win the Senate, which would give the Republican Party complete control of Congress and make it easier to advance their political priorities, even though President Joe Biden could veto. This may be the best-case scenario for industries favored by Republicans such as energy, defense, pharmaceuticals, and biotechnology.

The end of Democratic control will deny Biden the ability to use lawmakers to implement the rest of his agenda, potentially making him more dependent on executive actions to advance his priorities.

Here are the areas that stock investors should watch after the midterm results:

Cannabis

The cannabis sector was hit hard last year amid choppy pace US legalization and the broader mood for risk among investors in the highly speculative industry. The Cannabis Index is down 57% in 2022, with both Tilray Brands Inc. and Canopy Growth Corp. and SNDL Inc. by at least 45%.

Investors will closely monitor several state referendums to progress toward legalization at the local level. Voters in Maryland, Arkansas, Missouri, North Dakota and South Dakota will consider whether to approve adult legalization.

“If four or five agree, that would probably be considered positive, but if Maryland didn’t agree, that would definitely be considered negative,” said Kenneth Shea, an analyst at Bloomberg Intelligence.

Republican control of at least one chamber of Congress is likely to push federal legislation off the table for now. Democratic control of both houses, although unlikely, would be more favorable to the cannabis industry. The cannabis index rose 18% last month when Biden pardoned all prior federal offenses of simply possessing marijuana.

Health Care

Healthcare industry investors have been closely following developments from Washington on the issue of drug pricing, with the midterm elections to amplify the repercussions for the sector.

Clauses that would enable Medicare to negotiate some drug prices under the Inflation Cuts Act are being marketed by Democrats as a historic change that would lower drug costs for Americans. Not all expensive drugs will be subject to negotiations, but some cancer treatments and other brand-name drugs used by older adults may have lower prices by 2026.

“Republicans have traditionally been more favorable to the drug industry than Democrats,” Queen “While Republicans won’t be able to scrap drug pricing provisions, they have pledged to hold hearings on the plan and to look for other ways to slow law enforcement,” analyst Rick Weisenstein wrote in an October 14 memo.

Pharmaceutical companies including Pfizer a company , Abvi a company , Eli Lilly & Co. And the merck & Co. You can see all of their revenue forecasts affected by any changes in the rules regarding drug pricing.

Chinese stocks listed in the United States

The threat to delist Chinese stocks that trade on US stock exchanges but do not comply with Trump-era scrutiny laws has the support of both Democrats and Republicans. This support, combined with the growing geopolitical tension surrounding China, has sent Nasdaq The Golden Dragon China is down 39% this year.

If Republicans take full control of Congress, it will increase the intensity of oversight and likely lead to hearings not only on the status of audits but also whether Chinese companies should ever be listed in the United States, according to Garrett Seiberg, an analyst at Cowen & Co.

The Securities and Exchange Commission has specified About 200 shares are facing removal for not allowing US auditors, including tech giants, to access their records Alibaba Holding Group Ltd., Bindudu and Baidu Inc.

Clean energy

Democrats recently passed a landmark climate law that includes generous long-term subsidies for clean energy facilities. Although there are no Republicans in Congress who support the bill, it is unlikely that these credits will face any danger after the midterm elections. This bodes well for the developer NextEra Energy and Sunrun Inc. And the rooftop solar complex Biden still has two more years in his tenure – and the climate package is a landmark achievement he will be keen to protect.

Energy

Energy stocks have been a rare bright spot in a bleak year for stocks, buoyed by soaring oil and natural gas prices. This translates to higher fuel costs for Americans, making the sector an easy target for Democrats in an election cycle focused on the burdens caused by inflation.

Assuming Republicans win control of the Senate or the House of Representatives, energy policy is unlikely to see a major shift. While the Biden administration’s recent threat to impose an unexpected tax on oil producers initially sent companies including Philips 66And the ExxonMobil company and chevron Less company, such a proposal would likely be blocked by Republican lawmakers.

Even under the current makeup of Congress, Biden has “a little bit of power” to push his tax proposal, according to Benjamin Salisbury, managing director at High Capital Markets. He added: “It is highly unlikely that Congress will make any progress on this issue before the end of the year and is unlikely to address it in 2023.”

Even if Biden somehow gets the votes he needs to push ahead with an unexpected tax — which, to be clear, may be far-reaching at best — there is a potential upside for energy stocks, according to Louis Navellier, chief investment officer at Navellier. & Associated. The idea is that the tax will discourage new investment, thereby limiting oil supplies and driving prices higher.

Big tech

Major American technology companies, from the alphabet Inc. to me meta pads Inc. , has long been believed to be a target of potential regulation. Indeed, the White House is planning for the post-midterm elections Pay As for antitrust legislation, a last-ditch effort to get a pair of stalled bills through Congress before the expected Republican takeover in January. The Republican Party has made it clear that it will not support the bills if it regains control of either house of Congress.

For technology investors, half-cycles also bring a renewed focus on research and development tax cuts Developed during the Trump administration, which ended last year. Under this legislation, companies with significant R&D spending such as Intel Corp. And the Amazon.com can deduct these costs in full during the year in which they occurred rather than having to write them off over a five-year period.

Michael Taylor, an analyst at Wells Fargo. “If the tax credit is not reversed, a higher corporate tax bill will likely impact the earnings and performance of the affected companies.”

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