US midterms preview: what Tuesday’s vote could mean for markets
Democrats are favoured to take the House while the Senate is a toss-up, with AI stocks, the deficit and a long post-midterm rally streak in focus.
What is at stake in the House and Senate
Americans vote on Tuesday 3 November for all 435 House seats, roughly a third of the Senate and 36 governorships, and the consensus, such as it is, points to a change of control in at least one chamber. Republicans hold a 218-214 House majority, leaving Democrats needing a net gain of four seats, and one analysis puts the probability of a Democratic takeover at 90%, with a gain closer to 20 seats, roughly in line with the historical average. The Senate looks considerably tighter, with Democrats also needing four net gains to overturn a 53-47 Republican majority; prediction markets Kalshi and Polymarket favour a Democratic sweep, while banks such as Nomura expect a split Congress. President Trump’s approval stood at 32% in a September Reuters/Ipsos poll, the lowest of his presidency, and rising consumer prices, tariffs and the cost of the Iran war feature prominently in many races, Iowa’s Miller-Meeks contest among them, where higher diesel and fertiliser costs have pushed living costs up the agenda.
AI and data centres could feel the result first
The most direct market channel may run through the AI trade. Investors are bracing for greater scrutiny of data centres under a Democratic Congress, given intense public opposition to their effect on energy costs and the environment, while state and local races in Texas and elsewhere could shape the buildout itself. Rick Meckler of Cherry Lane Investments argues a significant blue wave would likely weigh on AI names, on tech more broadly and possibly on the market as a whole – unwelcome news for a market already described as AI-wary.
The deficit looks set to outlast any result
The fiscal arithmetic is likely to change rather less than the political map. National debt has topped $40tn and the fiscal 2026 deficit came in at $1.99tn, around 6% of GDP, and while analysts expect a Democratic Congress might slow the pace of new spending, few anticipate meaningful fiscal consolidation; Pimco goes further, warning that spending could even rise if Democrats gain leverage in debt-ceiling and spending negotiations. Congress must agree funding by 12 December to avoid a shutdown, and the $41.1tn debt ceiling could bind by mid-2027, setting up a showdown that analysts warn could rattle markets – a prospect a split Congress would do little to ease.
Contested results and the limits of a new Congress
A swift result may prove optimistic. Election litigation reached a record 756 cases in the 2023-2024 cycle, roughly triple the level before the Bush v. Gore ruling in 2000, and with 18 House races rated toss-ups by Inside Elections, recounts and court challenges could leave seats vacant for months, possibly muddying which party controls the chamber when the new Congress convenes in January. Alaska has already provided a preview, with a federal judge on 1 November dismissing a Trump administration suit seeking to block certification of a possible loss by Republican Senator Dan Sullivan, a ruling the Justice Department intends to appeal. The administration has also sued to stop California counting more than 20,000 mail-in ballots. Whatever the outcome, Trump retains veto power and broad authority over tariffs, immigration and foreign policy, and Treasury Secretary Scott Bessent has said there would be very little a Democratic House could do to block his agenda. The principal constraint from a Democratic Senate would likely come through judicial confirmations, with Democrats expected to block many nominees and possibly delay filling any Supreme Court vacancy until after the 2028 election.
What history says about post-midterm markets
History offers investors some encouragement. Morgan Stanley’s analysis of 1950-2022 found the S&P 500 gained an average of 8% in the three months after midterms and 15% over six months, and the index has been positive in every 12-month post-midterm window since 1942, a run of 21 consecutive elections. Part of the explanation may simply be that markets dislike uncertainty, and an election, however messy, eventually ends. This year’s backdrop is somewhat less tidy than most, with the AI trade under scrutiny, the deficit stuck near $2tn and a shutdown deadline weeks away, so the historical pattern may face a sterner test than usual.
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