Key Takeaways

  • We believe the most likely outcome is a split Congress, with Democrats taking the House and Republicans keeping the Senate, which should preserve broad policy continuity and limit the scope for major fiscal or legislative change. A Democratic sweep is also very likely. This would raise the risk of a more interventionist agenda, although still constrained by the budget deficit, while a Republican hold of both chambers is very unlikely.

  • Markets increasingly price a Democratic sweep, but policy risks remain. A Democratic House is largely priced in, while the Senate remains the key uncertainty. A Republican rebound or more aggressive use of executive powers could still surprise markets.

  • The midterms could reshape sector performance. Continued AI investment should support IT, with industrials and materials potentially benefitting as capex broadens. The impact on energy could be mixed, as higher energy prices remain supportive, while less opposition to renewable energy could make renewables more competitive.

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US midterm elections fiscal gridlock on the horizon

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