US Midterm Elections Could Impact Global Economy, Israeli Investments

Americans are heading to the polls for midterm elections on November 3rd, with potential repercussions reaching Israeli citizens' finances. The outcomes of the congressional races could alter the operating conditions for investors and companies on both sides of the Atlantic, affecting everything from dollar fluctuations and savings to high-tech company capital raises and US real estate investments. While former President Donald Trump is not on the ballot, his ability to advance his economic agenda is being tested.

Democrats are favored to win a majority in the House of Representatives, though the Senate race remains tight. A "blue wave," where Democrats control both chambers, is a possibility that has captured market attention. However, even such a victory would not allow them to unilaterally change policy, as the President retains significant executive powers and veto authority.

Three scenarios are being considered: if Democrats capture only the House, Trump would likely face increased oversight and need to compromise on tax and budget issues. Democratic control of both houses would present further obstacles to legislation and appointments. Conversely, if Republicans maintain control of Congress, the President would have greater latitude to advance his plans, contingent on his ability to garner a majority. A change in majority does not guarantee a shift in tariffs, as some trade policies rely on presidential authority, meaning Israeli companies selling to the US cannot assume a Democratic win will lead to their removal.

Market reactions will focus on how election results impact Trump's economic policy implementation. Guy Almog, Investment Advisor Manager at Bank Jerusalem, suggests that a stronger Democratic showing might hinder legislation and increase oversight but not necessarily lead to immediate changes in tariff policy. He notes that dollar movements will also be influenced by inflation, interest rate expectations, and the US deficit. Almog emphasizes that the shekel's performance is also affected by Israel's risk premium, geopolitical conditions, and capital flows, so a sharp dollar reaction to the elections might not be mirrored against the shekel.

For Israeli exporters and high-tech firms, a weaker dollar could erode shekel revenues, while a stronger dollar could increase them but also raise dollar-denominated expenses. The impact depends on each company's operational structure and currency hedging. US markets are crucial for Israeli companies' sales, investments, and acquisitions. Changes in financing conditions and investor risk appetite could affect capital raising and exits, with Wall Street volatility potentially spilling over into Israeli savings exposed to the US market.

Yaniv Malamud, Founding Partner at Alto Fund, advises looking at local US real estate dynamics, such as population growth, employment, and infrastructure investment in areas like Texas and the Dallas-Fort Worth metroplex, which support demand for logistics and retail properties. However, he cautions that large investments don't automatically guarantee demand for every property, stressing the importance of location, competitive supply, tenant quality, financing, and purchase price. Liran Kots, CEO of Meisharim, distinguishes between market reactions and property performance, anticipating that the midterms will primarily affect investor expectations, financing conditions, and deal execution pace rather than immediate property activity. He highlights that uncertainty can delay transactions even if properties continue to generate income, and emphasizes the importance of local employment, purchasing power, and tenant mix in the diverse US real estate market. Ultimately, Washington's decisions may alter the game, but tenant demand and cash flow on the ground will determine long-term investment success.