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GOP may not have the lock on Senate that many assume, Strategas says

GOP may not have the lock on Senate that many assume, Strategas says

Investors may be too comfortable in their view that Senate Republicans will hold on to their majority in the upcoming election or even add to it, according to Strategas.

If the election were held today, Strategas said, it’s likely the GOP would hold on to its 51 percent majority. But Strategas added that the current probabilities of the GOP keeping that Senate majority, near 75 percent, are too high given the tightening in some polls.

In other words, the outcome everyone expects and that is reflected in the current market may be less of a slam dunk than people think.

Dan Clifton, Strategas head of policy research, said, in a note, that the odds of a repeat Republican-majority Senate could start to fall with new polls. He pointed to recent polls showing Democrats gaining ground in five key states. This runs contrary to the thinking of some strategists that the Republican majority could actually increase after the Nov. 6 election.

“If the election were held today, the net change would be zero seats leaving the Republicans with a 51-49 Senate,” Clifton said. “Hard to say that warrants 75 percent odds.”

PredictIt, a predictions market, shows a 74 percent probability of Republicans keeping the Senate, while Democrats have a 71 percent chance of overturning the Republican House majority.

The Republicans currently have 51 seats, the Democrats have 47, and there are two independents. According to Real Clear Politics, nine races are up for grabs.

Clifton noted that polls in five races show near ties. Fox News polls in states President Donald Trump won — North Dakota, Missouri, Arizona, Tennessee and Indiana — show contests within the margin of error.

For instance, a Fox News poll shows Indiana Republican Mike Braun ahead of incumbent Democratic Sen. Joe Donnelly by 2 points, but Libertarian Lucy Brenton has 3 percent and another 8 percent are undecided.

In Arizona, Democrat Krysten Sinema edged ahead of Republican Martha McSally, 47 to 44 percent, in a Fox News poll. Missouri’s race is also tight, with Democratic Sen. Claire McCaskill, a two-term incumbent, leading her Republican challenger Josh Hawley by just 44 to 41 percent.

Source: Strategas Research

“If the probabilities of the Republicans keeping the Senate are falling, then I think investors are remaining too optimistic and think no change is occurring,” said Sam Stovall, chief investment strategist at CFRA. “Any kind of injection of uncertainty is not good.”

Stovall said the market is basically ignoring the election this year, choosing instead to focus on trade and other issues. “I’ve been assuming that the Senate is pretty much in the Republicans’ hands,” Stovall said, adding the market’s view is the House will change hands but the Senate will not. “September historically is down, and it’s down even further on average whenever the majority party loses one or more houses of Congress.”

So far this year, the market has ignored history. The second quarter and third quarter are positive, unlike most midterm election years.

Source: CFRA

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