How to invest ahead of the US midterm elections

• Democrats are favoured to gain control of at least the House, amid President Trump’s weakening approval ratings and persistent cost-of-living pressures.

• Major legislative changes are unlikely regardless of the election outcome. A Democratic-controlled Congress would face a Republican president with veto powers, while continued Republican control would still be constrained by narrow majorities and fiscal pressures.

• Sector impacts could differ at the margin. Healthcare and clean energy policies may become more favourable under Democratic gains, while continued Republican control could benefit traditional energy and AI infrastructure. State and local restrictions on data centre development remain a risk regardless of congressional control.

• Historical S&P 500 performance suggests political control alone is not a reliable guide to market returns. Investors should focus on corporate earnings and macro conditions rather than bet on an uncertain election outcome.

• We remain underweight broad US equities and cautious on consumer discretionary, favouring opportunities in the digital economy sector as well as  high-quality companies. 

The US will head to the polls on 3 November 2026 for the midterm elections, with control of Congress at stake. Republicans currently hold majorities in both the House of Representatives and the Senate, but the balance of power could shift. Democrats need a net gain of three seats in the House and four seats in the Senate to take control of the respective chambers.

Historically, the president’s party tends to lose ground in midterm elections. In 20 of the past 23 midterm elections, the president’s party has lost House seats. At the same time, President Donald Trump’s approval ratings have deteriorated since the start of the year amid rising cost-of-living pressures, making a Republican sweep of both chambers an unlikely outcome.

Affordability could emerge as one of the defining economic issues in this election. US inflation accelerated in September, with headline Consumer Price Index (CPI) rising to 3.7% year-on-year (YoY) from 3.4% in August, reflecting higher energy prices amid the ongoing Middle East conflict. Core CPI also increased to 2.6% from 2.4%, with both headline and core readings coming in above market expectations. Although inflation has eased from its previous peaks, it remains elevated and many households continue to feel the cumulative effects of higher prices. These persistent cost-of-living pressures could weigh on Republican support at the ballot box.

Figure 1: President Trump’s approval ratings have weakened since the start of 2026

Prediction markets and polling data point to a challenging election for Republicans. As of 14 October, Polymarket assigned a 63% probability to a Democratic sweep of both chambers of Congress, compared with a 29% probability of a split Congress in which Democrats control the House while Republicans retain the Senate. Meanwhile, the RealClearPolitics average of national polls asking voters which party they would support for Congress showed Democrats leading Republicans by 8.1 percentage points, suggesting that Democrats have a meaningful lead in national voter preferences.

Figure 2: Democrats hold a sizeable lead in the generic congressional vote

While redistricting — the redrawing of electoral district boundaries — could favour Republicans, Trump’s weakening approval ratings and the party’s narrow House majority suggest that Republicans face an uphill battle to retain control of Congress. The more likely outcomes at this point are a split Congress or a Democratic sweep.

Limited policy change, but some sector implications

Given the likelihood of a split Congress or Democratic sweep, we do not expect major legislative changes over the next two years. A Democratic sweep could shift congressional priorities towards healthcare affordability, clean energy and greater technology regulation, although the Republican-controlled White House could veto legislation that conflicts with its agenda, limiting the scope for major policy changes. Overriding a presidential veto requires a two-thirds majority in both chambers, which would be difficult to secure given the expected narrow majorities.

Although less likely, if Republicans retain control of both chambers, the Trump administration would have greater scope to advance its agenda, particularly through budget reconciliation, which allows certain budget-related legislation to pass the Senate with a simple majority. Nevertheless, narrow congressional majorities and a large budget deficit could constrain further legislative changes.

Although the overall policy outlook may change little, different electoral outcomes could still affect individual sectors at the margin.

Sector implications

• Healthcare: A split Congress could reduce the likelihood of further Medicaid cuts, while a Democratic sweep could allow Democrats to secure concessions to delay or soften reductions under the One Big Beautiful Bill Act through spending negotiations, although a full reversal is unlikely given the veto. Under continued Republican control, hospitals serving Medicaid beneficiaries and Medicaid-focused managed care companies could face greater pressure as scheduled Medicaid cuts take effect, although markets may have already priced this in.
  
  
• Clean and traditional energy: A split Congress or Democratic sweep could help preserve remaining tax incentives for renewable energy and energy efficiency, although restoring removed incentives is unlikely without the president’s support. Continued Republican control would favour oil and gas companies through lighter environmental regulation, while solar and wind developers could face a less supportive federal policy environment.
  
  
• Technology and AI: A split Congress or Republican hold lowers the likelihood of major new federal legislation on antitrust, AI safety and data privacy. Republican control could also be more supportive of data centres, power generation and grid investment, benefiting selected suppliers of electrical equipment, energy services and construction. A Democratic sweep could bring greater scrutiny of large technology companies and data centres, but would not necessarily halt the AI infrastructure buildout, as federal restrictions on data centre construction could face resistance from the president.
  
  Separately, state and local restrictions on data centre development are already emerging regardless of congressional control, as local opposition grows over concerns about electricity costs, water consumption and noise pollution. Developers may therefore face greater pressure to bear the cost of grid upgrades, manage water consumption and address community concerns, potentially favouring projects in areas with fewer infrastructure constraints and greater local acceptance.
  
  
• Government-dependent companies: Legislative gridlock, particularly under a split Congress, could raise the risk of government shutdowns, potentially disrupting revenue and cash flow for companies reliant on federal contracts and payments.

How should investors position ahead of the midterms?

The midterm elections could trigger market volatility in the coming weeks, but we believe their impact on broader equity markets will be limited relative to longer-term economic and earnings fundamentals.

Historically, the S&P 500 has generally performed well in the months following midterm elections, as uncertainty over the composition of Congress subsides. More broadly, as Figure 3 shows, the S&P 500 has delivered positive annualised returns under all but one combination of political control since 1945. The exception was 2002, when a Republican president faced a split Senate and the S&P 500 recorded an annualised decline of 17%. However, this weak performance was driven primarily by the bursting of the dot-com bubble rather than the political makeup of the government.

Figure 3: Stocks tend to rise over the long term regardless of political outcomes

Source: Ameriprise; Bloomberg. Data as of 30 April 2026, beginning in 1945.

Rather than bet on an uncertain election outcome or policies that may not come to pass, we believe investors should focus on the more important drivers of market performance, including AI capital expenditure, adoption and monetisation, corporate earnings, economic growth, inflation and the outlook for interest rates.

We favour longer-term structural growth opportunities, particularly in the digital economy, where AI is the key driver. Among internet companies, we see opportunities in Big Tech as AI monetisation becomes more tangible, and in cybersecurity firms benefiting from growing security needs. Although a Democratic sweep could bring greater scrutiny of large technology companies, we view this primarily as a sentiment risk, given the limited scope for major legislative change.

Related article: Digital Economy (Internet) 4Q26 outlook: Sailing through the tides; Maintain 3.5 Stars

We also remain positive on semiconductors, where stronger earnings prospects and sustained AI investment support the outlook despite concerns over the sustainability of capital spending. Because semiconductor demand depends on the continued buildout of AI infrastructure, the state and local constraints on data centre development noted above are a risk to watch. Permitting delays could defer capacity expansion and AI monetisation, which may weigh on share prices in the near term, although we remain constructive on the longer-term demand outlook as AI adoption expands.

Related article: Semiconductor 4Q26: Longer runway, cheaper entry; Upgrade to 3.5 Stars Attractive

Elsewhere, we remain cautious on consumer discretionary stocks, as elevated inflation, higher-for-longer interest rates and weakening consumer confidence could constrain spending.

At the broader market level, we remain underweight US equities given their elevated valuations relative to Asian markets such as Taiwan and South Korea, which offer comparable growth prospects at more compelling valuations. For broad US exposure, we prefer high-quality companies with strong balance sheets, resilient earnings and high returns on equity.

Related article: US Outlook 4Q26: Growth remains strong but selectivity matters

Table 1: Recommended products

Sector/Style	Recommended Products
Digital Economy	•       Fidelity Global Technology A-ACC-USD •       Eastspring Investments Unit Trusts - Global Technology SGD •       Invesco NASDAQ Internet ETF (NASDAQ: PNQI) •       Global X Cybersecurity ETF (NASDAQ: BUG) •       VanEck Semiconductor ETF (NASDAQ: SMH)
Quality	•       JPMorgan U.S. Quality Factor ETF (NYSE: JQUA) •       PineBridge US Large Cap Research Enhanced A USD

Declaration:

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.