The midterm election season always generates much anticipation, speculation, and examination. Typically, the midterms are referendums on the party in power, with that party often suffering low approval ratings. It then might follow that voters empower the “out" party to take a crack at fixing the country’s ills, resulting in a “wave” election that hands the out party control of the House, the Senate, or both.

This year, however, is anything but typical on many fronts. Yes, the party in power has low approval ratings and the midterms will be a referendum on the Democrats – especially the president. Notably, though, these midterms will likely be a referendum on former President Donald Trump. At no other time in modern history has a former president been so prevalent to his party two years after departing the office.

Also atypical this time around, but extremely crucial, are the issues we face as a nation. We have not battled inflation in 40 years, with most adults having never personally experienced an inflationary economy. Elected officials have not had to grapple with abortion as a political issue for some 50 years – until the Supreme Court’s 2022 Dobbs ruling overturned Roe v Wade. We’re also seeing unprecedented numbers crossing our borders and being shipped to US cities for practical and political reasons. Crime, always a problem, is escalating to levels not seen since the crack epidemic of the 1990’s.

It May Come Down to Simple Math
So, what can we expect given such an unusual backdrop? Let’s start with the wave election scenario. With a presidential approval rating below 45%, where President Biden currently resides, the out party’s wave election could mean they pick up anywhere from 30 to 60 seats in the House and four to six seats in the Senate. This midterm, however, may not afford the Republicans that advantage. Why? Simple math.

With 435 seats in the House, a party needs 218 seats for the majority. The out party typically holds 180 to 200 seats going into the election - but this time, with a whopping 212 seats, the Republicans only need to pick up six seats to control the House. Even to get to 230 (a common final House count) would only be a pick-up of 18 seats. Bottom line… the Republicans may not get their wave election, but more significant, they don’t need it. They just need six seats, and with the Senate’s even 50-50 split, they only need one to control the chamber.

So, Who Has The Edge?
President Biden and the Democrats saw their approval ratings improve in August, only to stall in September. The August bump was multi-faceted thanks to successful passage of several pieces of legislation, backlash from the overturn of Roe v Wade, declining energy prices, near wins in special election House races in reliable red districts, and former President Trump’s legal woes topping the headlines.

September, however, wasn’t quite as buoyant for the Democrats. Release of the September 13 inflation report showed a rise to 8.3% and unfortunately coincided with a preplanned, though ill-timed, White House celebration for the Inflation Reduction Act (nothing throws a wet blanket on an inflation reduction party like a sour inflation report). The market also sold off due to the disappointing report – retreating roughly 12% from the date of the report’s release to month-end.

The dichotomy of the Democrats’ fortune between August and September illustrates that while issues like abortion and climate are critical electorate considerations, pocketbook issues of inflation and the markets cannot be ignored. The Democrats must get a firm grip on their messaging around inflation and energy prices, and how they propose to control both.

The Republicans have been on their own wild ride. In spring 2022 they had the election by the tail and a clear path to winning back both chambers. As we note above, they still have an excellent chance of winning control of the House, but the Senate is now a complete toss-up. So what happened? Dobbs and Trump…

Dobbs vs. Jackson
The Republicans have wanted to overturn Roe v Wade since it became law in 1974. Despite their fervent and long-standing hopes, however, were they prepared should it actually transpire? Neither party has had to campaign on abortion for almost 50 years. The Supreme Court is the decision maker to legalize abortion and Congress cannot override their decision via legislation or any other avenue. But now that Roe v Wade has been overturned by the Dobbs v Jackson Women’s Health decision, it is a front-and-center campaign issue.

Polling suggests that a majority of Americans do not support a full abortion ban. This was confirmed when the state of Kansas put an abortion ban on the ballot, which voters fiercely rejected. What’s more, record numbers of women are registering to vote, easily out numbering men. Several Republican candidates have removed or amended their websites’ abortion positions. Republicans will need to stand behind their abortion positions or hope the issue fades away by November 8, which is highly unlikely.

Donald Trump’s Undeniable Influence
The former president has been wildly influential in the primary elections. Of the roughly 190 candidates he backed, 95% won their primary against Republican challengers. Note that the vast majority of those candidates were unopposed or the incumbent (easy wins), but of the ten candidates he backed to oust the incumbent, six were victorious. Trump has also been in the spotlight for his legal battles with the Department of Justice, the FBI, and multiple states. Add to this the mano-y-mano battles he has waged against a slew of governmental officials like his ongoing skirmishes with Minority Leader Mitch McConnell. Though strongly supported by Trump’s base, these battles could hurt Republicans by giving swing voters reason to vote for the Democratic candidate. The less attention on the former president leading up to November 8, the better for the Republicans’ chances of winning their most competitive races – especially in Senate and Governor races.

Wait, There’s More…. Down Ballot or Split Tickets?
Several states - Georgia, Arizona, Nevada, Wisconsin, Pennsylvania, Ohio - face tight Senate races. Many of these states also have competitive Governor races. Over the past 20 years as the country became more partisan, Americans have mostly voted down party lines. In the past, it was common for voters to split their ticket - they register in one party, but vote for another if they feel the other party has the better candidate. If voters follow recent behaviors this November and vote “down ballot,” the stronger party’s candidate may carry the weaker candidate.

Ohio and Georgia have two Senate Republicans in tight races, but stronger Republican Governor candidates. Pennsylvania has a Senate Democrat with a stronger Governor candidate. The Governor races could determine these competitive races by carrying the Senate candidate. Conversely, in Arizona, the Senate Democratic candidate is polling higher than the Republican by a decent margin and the Governor’s race is rated a toss-up. If the Senate Democrat wins the race it could mean victory for the Democrats. Meanwhile, Senate and Governor races in Nevada and Wisconsin are neck and neck.

There is also a chance that voters will go against recent practice and opt to split their tickets so it’s every candidate for themself! Sound confusing?... It is, which is why it’s next to impossible to predict which party will control the Senate. If there are races too close to call on November 8, we may not know the victorious party for days or even weeks as recounts are conducted.

The Issues Matter
This much we do know… these midterms will be about the issues: the economy, crime, immigration, abortion to name the big ones. How might these issues influence swing voters, or motivate party line voters to split their tickets? In an unusual midterm election year, we could be in for plenty of surprises.
This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed are as of October 3, 2022 and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.

The views and opinions contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Natixis Investment Managers, or any of its affiliates.

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