2022 US Mid-Term Elections

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-Mid-Term Elections in the US are set for November 8th, with Democrats holding narrow control of Congress in addition to the Presidency

-Each of the 435 House of Representative seats and 35 of 100 Senate seats are up for re-election

-History suggests that the party of the newly elected President loses, on average, approximately 28 seats in Congress

History and Background

Mid-term elections in the US occur mid-way through a President’s term in office. All 435 seats in the House of Representatives and roughly a third of the 100 seats in the Senate are up for re-election. Additionally, the 2022 election will be the first to take place following apportionment and redistricting after the 2020 census. As a result of apportionment, six states gained seats in the US House (Oregon, Colorado, Florida, Montana, North Carolina, and Texas) and seven states lost seats (California, Illinois, Michigan, New York, Ohio, Pennsylvania, and West Virginia).

Going into the 2022 mid-term elections, the Democratic party holds narrow control of congress in addition to holding the presidency. History suggests that the President’s party will lose seats in the mid-terms and given the Democrats’ slim margins, that would almost certainly mean a split or unified Republican congress opposite Democratic President Joe Biden. From 1934 through 2018, there have been 14 mid-term elections for first time presidents. In those mid-term elections, the President’s political party lost an average of 26 House seats and two Senate seats.

The historical tendencies are notable but there are exceptions, and the current environment will ultimately decide the election. The economy and monetary conditions tend to carry greater weight than politics in the minds of voters, and this has been shown to be most true when either was considered a headwind. That presents a difficulty for the Democratic party in the current environment, as the economic backdrop is full of negative headlines with high inflation, rising interest rates, and two consecutive quarters of negative GDP growth. However, social issues could potentially play an outsized role in this election, as some recent controversial Supreme Court decisions have served to animate portions of the electorate, particularly on the Democratic side. So, while history and the economy favor a shift to a Republican congress, the situation is complex and evolving, and many races are too close to call.

What are the Potential Outcomes?

The influence of centrist members of the Democratic party has resulted in a US Congress which is already closer to gridlock over the past two years than might have been expected immediately following the 2020 election. This is best illustrated in the failure of President Biden’s full agenda in the “Build Back Better Act” to pass. This bill, initially $3.5 trillion and later scaled down to $1.7 trillion, was focused on climate change and social policy. Some aspects of Build Back Better were included in the recently passed $737 billion Inflation Reduction Act, which included investments in green energy and prescription drug reform. Elements of Build Back Better that remain unpassed include universal pre-k, expanded child tax credits, paid family leave, and further expansions to Medicare.

In the less likely event that Democrats maintain control of the House and expand their power in the Senate, these remaining provisions, which represented nearly $1 trillion of spending in the original bill, would again be on the table.

Republicans taking either the House, Senate, or both, would limit major changes to spending or tax policy. There is also a risk of a budget battle resulting in a fight over the debt limit, similar to 2011. That crisis led to a brief spike in market volatility, as well as the first-ever downgrade to the US Credit rating but was ultimately resolved with minimal long-term pain. Additionally, 2021’s bipartisan Infrastructure Bill which passed the Senate 69-30, does demonstrate the potential for limited bipartisan agreement under the current administration.

Current projections based on aggregated polling data slightly favor Democrats relative to history, with Republicans projected to win the House but Democrats projected to maintain their razor-thin advantage in the Senate.

What Matters to the Markets?

Historically, US equities generally underperform average returns in mid-term years but outperform in the months immediately following the election. Financial markets dislike uncertainty and the lack of clear direction heading into mid-terms can be disruptive, while a more well-defined fiscal agenda following elections can improve investor sentiment. This explanation does not explain all market moves in mid-term years, however, and the prevailing market conditions are far more important to long-term market returns than temporary policy uncertainty. That said, an important takeaway from this data is that the typical mid-term result – loss of incumbent control and increased political gridlock – is not something that historically upsets financial markets.

Our Position

Timing the market is difficult and positioning portfolios around an upcoming election is no different. The data is mixed regarding market performance driven by mid-term election outcomes. Our position is that financial markets are currently far more focused on issues outside of US politics, such as the path of Fed tightening and the war in Ukraine, which in turn have been contributing to recent market volatility. We continue to believe investors should remain globally diversified, long-term focused, and employ risk-mitigating strategies, as appropriate.


The views expressed herein are those of Asset Consulting Group (ACG). They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm.

This report was prepared by ACG for you at your request. Although the information presented herein has been obtained from and is based upon sources ACG believes to be reliable, no representation or warranty, express or implied, is made as to the accuracy or completeness of that information. Accordingly, ACG does not itself endorse or guarantee, and does not itself assume liability whatsoever for, the accuracy or reliability of any third party data or the financial information contained herein.

Certain information herein constitutes forward-looking statements, which can be identified by the use of terms such as “may”, “will”, “expect”, “anticipate”, “project”, “estimate”, or any variations thereof. As a result of various uncertainties and actual events, including those discussed herein, actual results or performance of a particular investment strategy may differ materially from those reflected or contemplated in such forward-looking statements. As a result, you should not rely on such forward-looking statements in making investment decisions. ACG has no duty to update or amend such forward-looking statements.

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Please be aware that there are inherent limitations to all financial models, including Monte Carlo Simulations. Monte Carlo Simulations are a tool used to analyze a range of possible outcomes and assist in making educated asset allocation decisions. Monte Carlo Simulations cannot predict the future or eliminate investment risk. The output of the Monte Carlo Simulation is based on ACG’s capital market assumptions that are derived from proprietary models based upon well-recognized financial principles and reasonable estimates about relevant future market conditions. Capital market assumptions based on other models or different estimates may yield different results. ACG expressly disclaims any responsibility for (i) the accuracy of the simulated probability distributions or the assumptions used in deriving the probability distributions, (ii) any errors or omissions in computing or disseminating the probability distributions and (iii) and any reliance on or uses to which the probability distributions are put.

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Past performance is not indicative of future results. Given the inherent volatility of the securities markets, you should not assume that your investments will experience returns comparable to those shown in the analysis contained in this report. For example, market and economic conditions may change in the future producing materially different results than those shown included in the analysis contained in this report. Any comparison to an index is for comparative purposes only. An investment cannot be made directly into an index. Indices are unmanaged and do not reflect the deduction of advisory fees.

This report is distributed with the understanding that it is not rendering accounting, legal or tax advice. Please consult your legal or tax advisor concerning such matters. No assurance can be given that the investment objectives described herein will be achieved and investment results may vary substantially on a quarterly, annual or other periodic basis. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.

Gryphon Financial Partners shall not in any way be liable for claims and make no expressed or implied representations or warranties as to their accuracy or completeness or for statements or errors contained in or omissions from them. This was created for informational purposes only. Gryphon Financial Partners, LLC is an Investment Adviser.

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