Do you already have November 3, 2026 marked on your calendar? History suggests that in the U.S. midterm elections, a low approval rating for the incumbent president could cost Republicans their narrow majority in the House of Representatives, although they have a better chance of holding the Senate. It is clear that its outcome will be relevant because control of Congress is important for fiscal policy, regulation, and public spending, three aspects that influence investments.
However, as George Brown, senior economist at Schroders, recognizes, over the years, the composition of Congress has had little influence on U.S. equity returns. “Earnings, growth, inflation, and interest rates have been much more important. Therefore, the most plausible consequence of the midterm elections is greater dispersion among sectors, and it is possible that politically sensitive areas, such as energy, healthcare, and technology, will face greater scrutiny,” he explains.
In the view of Paolo Zanghieri, senior economist at Generali AM (part of Generali Investments), the November midterm elections are likely to result in a divided Congress, with Democrats being very likely to win the House of Representatives by a narrow majority. “This increases the risk of a standoff over the debt ceiling in January 2027. An agreement extending healthcare assistance in exchange for tax cuts remains possible, but that would further weaken the fiscal outlook. We expect the deficit to close 2026 around 6% of GDP,” he points out.
The Decisive Factor
On the contrary, for Thomas Mucha, geopolitical strategist at Wellington Management, where one really needs to focus when analyzing the implications of these midterm elections is not on their outcome, but “on what does not change.” Mucha considers that the greatest investment opportunities of the next decade will not arise from radical policy changes, but from their continuation.
“Markets spend a tremendous amount of time trying to predict election results. Perhaps the most useful question is: what trends are likely to endure after the election, regardless of who wins? That list is becoming increasingly clear to me: competition with China; artificial intelligence (AI); industrial capacity; defense modernization; critical minerals; infrastructure resilience; cybersecurity; energy security; and supply chain resilience,” explains the Wellington Management expert.
According to his vision, it is possible that these issues move forward faster under one party than another. “The most important question is what the United States has already decided. I think it is unlikely that the greatest investment opportunities of the next decade will come from election surprises. They will come from the structural changes that continue long after the votes have been counted. And, increasingly, those changes point in the same direction: toward a world in which resilience, capacity, national security, and adaptation matter more than mere economic efficiency,” he insists.
The dollar and bonds
For the experts at J. Safra Sarasin Sustainable AM, this election could become an important test of investor confidence in the country’s public policy making. “For the dollar, a key question will be determining whether the composition of the next Congress alters the growth trajectory through changes in fiscal policy, trade relations, and investment linked to artificial intelligence. However, the election result could also trigger a reassessment of the risk premiums associated with uncertainty about U.S. economic policy,” the firm states.
According to its analysis, if Democrats gain control of both chambers, it would limit the legislative agenda of the Trump administration and strengthen congressional oversight. “While this scenario could moderate the fiscal momentum, it would also foreseeably contribute to strengthening confidence in U.S. institutions, reducing the political risk premiums currently priced into both long-term U.S. Treasury yields and the dollar,” they acknowledge.
In this regard, it is true that alongside the strength of AI-driven growth, concerns about the sustainability of U.S. public debt have been one of the main factors pushing long-term Treasury yields higher during the summer. “As a consequence, the historically positive correlation between long-term U.S. yields and the dollar has broken down over the past three months, a situation we would expect to reverse in the event of a Blue Sweep,” they clarify.
Additionally, experts at J. Safra Sarasin Sustainable AM acknowledge that concerns surrounding the political independence of the Federal Reserve should diminish as Democrats gain influence over the confirmation of future appointments to the central bank. “On the flip side, we expect a more restrained fiscal spending policy and a potential slowdown in data center construction to reduce some of the economic growth momentum, which could partially offset the supporting factors for the dollar,” they conclude.
