The sound and the fury are over. The Republicans have trounced the Democrats in last week’s election. To put the latest shift in a historical perspective, the US President has now lost more house seats since he took office than any White House occupant since Harry Truman. So what does this mean for markets and financial assets? How does the current political landscape affect your investment pocket book and the near-term outlook? Here are some aspects to consider:

• US stock markets have a historic tendency to rise after midterm elections. The S&P 500 has averaged 17 per cent returns in the 12 months after the past 16 midterm elections, versus only a five per cent return after presidential elections. In fact, since 1945, the Standard & Poor’s 500 Index has climbed an average of 15 per cent per annum in years when a Democratic President has been opposed by a Republican-controlled Congress, according to Sam Stovall of Standard & Poor’s.

• Odds are high for some form of confidence-boosting tax reform. Although conventional wisdom seems to suggest gridlock in Washington will resume, there is probably a better chance for more productive aspects to get done with only two electoral bodies involved. It’s now the Senate/House versus the President and one of the top items on the list of reforms is the US corporate tax structure. The President has already suggested that he is amendable to a revenue-neutral deal — one in which the legislation lowers the overall tax rate and simultaneously eliminates various tax loopholes is a possibility. There are two potential positives on this. First, a tax code with lower rates and a broader base should be particularly positive for small- and medium-sized firms since they are much less able to benefit from tax loopholes and therefore pay a higher effective tax rate. Second, a reduced effective rate for smaller firms would boost job creation. As discussed many times in this column, the majority of American jobs are created by small- and medium-sized firms.

• Big energy looks to be a winner. The Democrats are largely seen as being the party of regulation and environmental concerns. They have been seen as preventing the Keystone XL pipeline, slowing and questioning fracking and restricting the export of US crude oil. With a Republican Senate and House it seems more likely that pro-energy policies will be forthcoming.

• Defense stocks could get a boost as Republicans could push to undo some of the sequester cuts that have hit the defence budget pretty hard and ramp up other spending.

• Medical device makers could see a significant boost to their profit outlooks if the 2.3 per cent tax on sales is repealed. This appears likely as this legislation could gather 60 or more votes in the Senate and the vote has been bottled up by the current Senate majority leader in order to avoid embarrassment for the party before the elections.

• The financial sector should also benefit from less regulation and exorbitant fines. Case in point, both the Attorney General Eric Holder and his main deputy in charge of getting tens of billions from the major banks in fines have recently announced their resignations. The litigation gauntlet which the major financial players have had to navigate over the past several years looks mostly behind us at this point.

• With the prospect of any significant new government-spending programme off the table as well as a more pro-business/growth agenda in the legislative branch, the dollar should continue to appreciate. Especially given that the US central bank is on a different policy trajectory than its European and Japanese counterparts which are escalating quantitative easing.

• The strong dollar tends to act as a headwind to commodities and commodity stocks. I would not be surprised to see gold fall to under $1,000/ounce sometime over the next two years. American multinationals with slow revenue growth that get a good portion of their sales overseas like McDonald’s and IBM Corporation, for example, could feel additional pressure on earnings from negative revenue translations.

In summary, the midterm elections could be viewed as a mild positive over the intermediate term. In fact, even if the public sector continues to be completely dysfunctional, the private sector in America remains a marvel of efficiency, productivity and innovation. Ultimately, however, corporate fundamentals and earnings matter most for the stock market. Don’t let any politician tell you otherwise.

Nathan Kowalski is the chief financial officer of Anchor Investment Management Ltd. The views expressed are his own. Anchor Investment Management Ltd is licensed to conduct investment business by the Bermuda Monetary Authority. He can be reached via e-mail at nkowalski@anchor.bm

Disclaimer: This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by the author to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investment involves risks. Readers should consult their financial advisers prior to any investment decision. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.