US Midterm Results Modestly Shift Policy Risks, but Fundamentals Still Guide Portfolios

Democrats have regained control of both chambers of Congress by a wider margin than expected and secured key governorships. They have won a 54-seat Senate majority, with two unresolved seats, and are projected to win more than 250 House seats. The market reaction has been moderate so far: US equities have rallied, the dollar dipped, and Treasury yields declined, while the price of oil fell more sharply. The decisive result reduced uncertainty about a contested election but is unlikely to produce sweeping legislative changes.

For long-term investors, an unexpected election outcome alone does not warrant changing portfolio positioning. Our research has consistently argued against investing around elections. Over long horizons, returns have been more closely associated with earnings growth, valuations, monetary policy, and the economic cycle.

Markets will instead focus on how policy affects AI investment and profitability, inflation and Federal Reserve policy, the Iran War, and mounting government debt. These forces are interconnected: AI spending has supported economic activity while increasing demand for power and financing, elevated energy prices have added inflation pressure, and substantial government borrowing has compounded interest-rate concerns.

A change in congressional leadership does not immediately alter these dynamics. President Trump’s veto power constrains major partisan tax and regulatory legislation. Congressional oversight, including scrutiny of corporate ties to the administration, and state and local decisions could increase company- and industry-specific risks.

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