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- The Midterms Are Priced Like a Normal Tuesday
The Midterms Are Priced Like a Normal Tuesday
Markets price Tuesday's vote as routine. The risk they skip is a count that takes weeks.
Election week is here, and the options market is treating it like an ordinary Tuesday. Man Group calculates that S&P 500 options price the day after the vote at only about 20% more than a typical day's move, in line with past midterms and roughly half of what a presidential race usually gets.
Prediction markets make Democrats the favorite to win both chambers, with odds that have climbed since early September. Here's what that pricing gets right, what it misses, and how to set up your portfolio before the polls close.
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What the Market Is Pricing
Investment banks build stock baskets around each election outcome, and Man Group ran those baskets through its factor model. A Democratic sweep basket leans defensive, with healthcare services as the biggest winners on the assumption that further Medicaid cuts would be avoided. Retail shows the second-biggest gain, while capital markets, meaning investment banks and brokers, look like the biggest losers. A Republican sweep basket is roughly the mirror image, so you can see exactly where the sector tilt sits if the favored result arrives on schedule.
Why This Election Lands Differently
The vote arrives in an economy that is running hot with inflation that isn't cooling. GDP grew at a 3.4% annualized pace in the third quarter, September PCE inflation reached 3.6%, and the Fed held rates at 3.75% to 4.00% on October 28 with two officials voting to hike. Whoever controls Congress inherits a budget fight with the 10-year Treasury yield near 5%, so fiscal choices feed straight into the borrowing costs you pay.
Health care is the clearest policy line. Enhanced Affordable Care Act subsidies expired at the start of this year, and hospital operators say almost everyone who lost exchange coverage went uninsured. HCA Healthcare took the rare step of previewing results in July as the expected hit to its 2026 income grew past $1 billion. Policy that slows those coverage losses goes straight to hospital volumes and bad-debt costs, which is why you see healthcare services at the top of the sweep basket.
Fed move tomorrow: shock cut, or fully telegraphed for months? |
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The Risk the Options Market Is Skipping
Man Group's own warning is the part worth your attention. The pricing assumes the result is known on November 4, but control of a chamber can hinge on a handful of close races. In 2022, the final Senate makeup wasn't settled until December, and in 2020 Senate control waited for the Georgia runoffs on January 5, 2021.
A slow count would hit at an awkward moment for you. The October jobs report lands Friday, November 6, and the Fed meets again December 8 and 9 with economists expecting a hike. Uncertainty stacked on a rate decision tends to lift trading volumes and hedging demand, and that is the scenario most portfolios are least prepared for.
How This Reprices What You Own
If you hold hospitals, health services, or discount retailers, the favored outcome is a tailwind you are not paying much for, because the market is only pricing a routine move. If you're heavy in brokers and investment banks, the same scenario is a headwind, so check your concentration before Tuesday night.
If you lean on index funds alone, a delayed result is the risk to plan for. Volatility tends to cluster when outcomes drag on, and a busier market rewards businesses that earn a fee on every contract traded.
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How You Position
Tilt toward the sectors the favored outcome helps, but buy the ones that work even if it doesn't arrive. A hospital operator with rising admissions and an off-price retailer with steady traffic both earn their place in your portfolio without a policy gift.
Add a hedge that pays when uncertainty rises. Exchange operators collect fees on every contract, and a contested count or a December hike scare both push your hedging costs, and their volumes, higher.
Trim concentrated positions in brokers and investment banks if they are a large part of your book. They carry the most downside if the sweep happens on schedule.
Don't trade the headline on election night. Close races can take days to call, so build your positions in stages through the week rather than all at once.
Top Picks
HCA Healthcare (NYSE: HCA) |
The TJX Companies (NYSE: TJX) |
CME Group (NASDAQ: CME) |
Setup Scorecard
Entry Zone: HCA $460 to $480 | TJX $135 to $142 | CME $285 to $298
Target: HCA $540 over 9 to 12 months | TJX $162 over 12 months | CME $325 over 6 to 9 months
Stop Loss: HCA $430 | TJX $126 | CME $270
Catalyst Timeline: Midterm results from November 3, the October jobs report on November 6, TJX third-quarter results on November 18, and the Fed meeting on December 8 and 9
Confidence Level: Medium. The sector tilt depends on an outcome markets favor but have not locked in, so each pick has to stand on its own business, and all three do.
Where This Leaves You
The core shift: markets are pricing the midterms as routine, with a Democratic sweep as the favored result and almost nothing priced for a count that drags on. What it means for you: healthcare services and retail carry the upside if the favorite wins, brokers and investment banks carry the downside, and a slow result is the risk your portfolio is least likely to cover. How to play it: own HCA and TJX for the sector tilt, add CME as insurance against a messy week, and build those positions in stages rather than betting on election night.
That’s it for today’s edition—thanks for reading! Reply to this email with any feedback or let me know which macro trends or markets you’d like me to cover next.
Best Regards,
—Noah Zelvis
Macro Notes