The stock market may be signaling Republicans are about to sweep Congress. Investments that would do well under Republicans are moving higher and outperforming investments in hypothetical Democratic portfolios, especially over the past week, according to Strategas. That could signal that the market is finding more potential for Republicans in the midterm elections to win back the Senate, according to Dan Clifton, the company’s head of policy research. hospital, once thought to be a long shot. Strategas creates Democratic and Republican portfolios to determine the investments with the most gain or loss, based on election results. The company uses the two baskets as a diagnostic tool to measure how financial markets perceive an election. “This basket gives Republicans 80% odds during the spring and then over the summer it drops and the Democrats have a better chance of winning,” Clifton said. “Republicans bottomed right around September 7th and have rallied ever since.” Strategas tracks portfolios in relation to the S&P 500 and to each other to determine what investors are pricing in elections. Republican portfolios peaked against Democrats on May 3, a day after leaked reports of an impending Supreme Court ruling against Roe v. Wade. One area seen as emblematic of the Biden administration is renewable energy, and these stocks and ETFs have been losing ground since mid-September. At the same time, the odds are for the Republican sweep to come in. November 8 has increased. For example, the iShares Global Clean Energy Fund has fallen 4.8% in the past week and 23.2% in the past month. Individual solar and other renewable energy names also fell sharply, such as First Solar, which falls under the Democratic Strategy’s category. Republicans had been expected to gain control of the House of Representatives, but the Senate was expected to be in Democratic hands until recently. “For a while it was 65 percent for Senate Democrats, but now it’s 50/50,” Clifton said. Clifton said his portfolio is pointing to a 60% chance of a Republican wipeout, while the betting market is at 50/50. Investments in the Democratic Party’s portfolio include HMOs and hospitals, in addition to renewable energy. “If the Democrats win, they will pass 100 years of history and they will claim they have a mandate,” he said. “They’re going to implement the child tax credit, expand Medicare and renewable energy.” Both parties will increase defense spending, but Republicans can do more but save more in other areas, he said. “If Republicans wipe out … from a macro perspective, it allows for a cap on government spending. It helps the Fed do its job on inflation,” Clifton said, co. Note that bond yields may fall. Other sectors include fossil fuel energy, infrastructure and immigration-related stocks, like private prisons. Clifton said Thursday’s very hot consumer price index was important, and that the Republican rally really started when the previous CPI report was released in September. Consumer prices rose 8.2% year-on-year in September, after rising 8.3% more than expected in August. “This election is about inflation, crime and problems,” said Clifton. Other topics are geared toward Republican interests. The strategic Republican portfolio “has really moved since the last inflation report… It posted a low on September 7 and outperformed 5% late on Thursday,” he said. Among the holdings in the Republican portfolio are companies that would benefit from the distribution and transportation of oil and gas, such as Enterprise Products Partners. Companies that are also included will benefit from more border enforcement and security, such as Axon Enterprise. There are also companies that would be winners if Republicans can scrap the tax increase. That would include global taxes and increased taxes on multinationals. Winners from that perspective could include Monolithic Power Systems. The strategist expects an impasse if Republicans win even one house of Congress and that would curb spending, which is seen as less inflationary. Investments that benefit from less inflation include iShares’ 1-3 year ETFs, as bond prices rise as interest rates fall. Defensive plays such as Lockheed Martin are also included, as are pharmaceutical companies including Johnson and Johnson. The Democratic portfolio was bolstered spring and summer by the Supreme Court’s overturning of the Roe v. Wade case, which guarantees the constitutional right to abortion. Polls show a majority of Americans disapprove of that ruling. That portfolio contains investments that benefit from inflation, like the ProShares 20+ year ultra-short ETF. Utilities like NextEra have been included as a hedge against inflation. Democrats could increase funding for broadband and water in another infrastructure bill if they want to wipe it out, so the portfolio includes stocks like Northwest Pipe. Democrats will support continued aid to Ukraine, including spending on drones and missiles. Aerojet Rocketdyne Holdings was brought in for that reason. The child tax credit law will help consumers, and that could boost stocks like retailer Children’s Place. Democratic healthcare policies could boost names like Molina Healthcare. “The market is increasingly pricing in the Republican sweep,” Clifton said. “For that, you need to find 51 Senate seats, and Republicans really don’t have a path to 51.” Clifton said. He noted that Georgia GOP candidate Herschel Walker has fallen sharply in the polls, but recently Pennsylvania is the state he is eyeing a Republican possibility of winning. “It’s running on Pennsylvania right now. It’s riding on Georgia,” he said. Democratic candidate lieutenant governor John Fetterman is running against Republican Mehmet Oz for the Senate in Pennsylvania. Fetterman’s health has been problematic since he suffered a stroke in May, but the candidate says he will have no problems serving. Clifton said an interview Fetterman did with NBC News last week didn’t go well and may have left him injured. Fetterman is leading by just 3.4 percentage points in poll consensus, according to Real Clear Politics. “The important X-factor in my opinion is whether there will be an indictment of former President Trump before the election,” Clifton said. “The committee on January 6 subpoenaed Trump, which Trump will likely ignore, and when he ignores it, they refer him to the Department of Justice.” Clifton said that could cause concern to some Republican voters, who may also be unhappy with reports that Trump ordered the removal of classified documents the government is requesting.