What Midterm Election Results Could Mean for the Market Outlook

by Larry Adam of Raymond James, 11/3/26

What Midterm Election Results Could Mean for the Market Outlook

Key takeaways:

  • Composition of the House is likely to shift, while the Senate is a toss-up
  • Items such as government funding and the debt ceiling will need to be addressed
  • Fundamentals will remain the driver of the market in the long term

As the days grow shorter and the nights longer, Americans will turn their clocks back, shifting from daylight saving time to standard time. But the clocks won’t be the only thing changing. Americans will also head to the polls, with the potential to reshape Congress in the 2026 midterm elections. More than 46 million voters have already cast their ballots, surpassing the total early vote in 2022. And with affordability top of mind, inflation and gas prices moving higher and a majority of Americans believing the economy is headed in the wrong direction, both polls and betting markets point to a potential shift in the balance of power. With the outcome likely to shape Washington’s legislative agenda, below we outline our election base case, what to watch for on election night and what the results could mean for the market outlook.

Is a shift in power likely?

If there is one constant in Washington, it is change. Since 2000, only one election has left the balance of power unchanged. Our base case is no different: Democrats flip the House (our policy team assigns a 90% probability), while the Senate remains a toss-up. With Democrats needing four seats to take control, key races to watch include Texas, Michigan, Maine and Alaska. Beyond Washington, however, the 36 gubernatorial races may prove just as consequential. With data center policy largely set at the state level, these races could shape the direction of AI policy, with important implications for investment, economic growth and equity markets.

Is a blue wave in the cards?

Midterms have often produced wave elections, with the party out of power picking up a significant number of seats. In 2010, Republicans flipped 63 House seats; in 2018, Democrats flipped 44. Could we see a similar tsunami-like shift this year? We don’t think so. While Democrats have built a sizable lead in the Generic House Ballot (+9), the number of truly competitive districts has dwindled. As a result, we expect Democrats to pick up closer to 20 seats, roughly in line with the historical average. Still, if a bigger wave begins to build on election night, we’ll be watching races such as VA-02, VA-07, and key Iowa and Kentucky districts for early signs.

What are the policy implications?

Coming off one of the least productive Congresses in modern history, the outlook for major legislation remains limited. Still, several must-address issues loom. Congress will need to pass appropriations bills or a continuing resolution to fund the government beyond December 12 and avoid a government shutdown, while also raising the debt ceiling, expected to become binding sometime next year. Spending priorities, particularly healthcare and defense, will likely be key areas of negotiation. But even if legislative activity remains subdued, policy risk will not disappear. The president retains broad authority over trade through executive action, making tariffs a potential source of economic and market volatility over the next 24 months. Geopolitical and military decisions, particularly in the near term, could also remain an important source of uncertainty, with much of that decision-making resting with the president.

See more: Midterms, AI & Fed Hikes: What Financial Advisors Need to Know