2026 U.S. Midterms: Focus on Politics, Keep an Eye on the Markets

The U.S. midterm elections in November 2026 are among the most important political events of the year. Although the presidency is not up for election, the races for the House of Representatives and some Senate seats could reshape the political balance of power in Washington and thus also influence the capital markets.

For companies and financial markets, the key factor is the extent of the government’s political leeway in the coming years. Accordingly, in addition to the election results, issues such as government spending, regulation, trade policy, and the future trajectory of the U.S. economy are coming into focus.

Current polls point to a close race. While Republicans currently hold majorities in both the House of Representatives and the Senate, the Democrats could gain seats, particularly in the House. The balance of power in the Senate is also increasingly seen as up for grabs.

Many political observers therefore consider a scenario of divided power to be likely. Such a situation would limit the scope for political action in Washington and make it more difficult to implement far-reaching tax or spending programs. At the same time, areas such as trade and foreign policy would continue to be strongly influenced by the president.

Historically, stock market volatility often increases in the run-up to U.S. midterm elections. The reason for this lies less in the political platforms themselves than in uncertainty about the future political course. Companies and market participants try to assess what impact shifts in the balance of power might have on regulation, fiscal policy, and individual sectors (Morningstar).

Once the election is over, some of this uncertainty typically subsides. Many market strategists point out that markets often react less to the specific election outcome than to the renewed political clarity that follows the vote.

Despite the high level of media attention surrounding the midterms, many analysts view the elections’ significance for the long-term development of financial markets as limited. Rather, the well-known economic factors, inflation, monetary policy, economic growth, and corporate earnings, remain the decisive factors.

From a historical perspective, too, it is evident that while political events can trigger short-term fluctuations, the long-term performance of stock markets depends much more heavily on corporate earnings trends and the macroeconomic environment.

A potential political stalemate in Washington could also make it more difficult to implement major legislative initiatives. Market observers often view this as a stabilizing factor, as it makes abrupt changes in taxation, regulation, or government spending less likely.

A notable feature of this year’s midterm elections is the growing importance of artificial intelligence (AI). The expansion of data centers and the infrastructure required for them is one of the central economic policy issues in the election campaign.

On the one hand, investments in AI are seen as a key driver of growth for the U.S. economy. On the other hand, rising energy demand, higher electricity costs, and regulatory issues are increasingly sparking political debate. Experts, however, believe that the importance of AI for competitiveness and national security is recognized across party lines.

Regardless of the election outcome, the continued development of AI infrastructure is therefore likely to remain a key issue for the economy and capital markets.

Especially during market phases characterized by political events and shifting sentiment, companies and sectors often perform differently. While some sectors may come under pressure, others benefit from structural growth and innovation trends.

The Momentum USA Strategy employs a systematic and rule-based approach to identify companies with above-average price performance. The focus is on U.S. stocks that have demonstrated relative strength compared to the broader market over an extended period. Selection is based on clearly defined criteria and is regularly reviewed to reflect current market trends.

Unlike traditional approaches, which rely on forecasts or individual market opinions, the strategy is consistently guided by observable market movements. Companies remain part of the strategy as long as their positive momentum remains intact. This allows companies with positive price momentum to be included at an early stage, while positions showing declining strength are reduced.

The approach is complemented by integrated risk management. During periods of increased market volatility, the strategy may establish a tactical short position in a U.S. stock index futures contract. Under certain market conditions, this hedge can help partially reduce market risks. However, it does not offer complete protection against losses. As soon as market conditions stabilize again, the hedge is gradually unwound. In this way, the strategy combines a momentum approach with rule-based risk management.

The Momentum USA Strategy offers a rule-based approach to selected companies. It is impossible to predict whether these companies will benefit from growth trends in the future. Particularly during periods of political uncertainty, when market leaders and laggards often stand out from one another quite distinctly, a rule-based momentum approach can represent an alternative way of investing in the U.S. stock market. However, as with all investment strategies, risks exist, and positive performance cannot be guaranteed.

Sources: Lombard Odier: U.S. Midterm Elections: Volatility at First, Then Investment Opportunities (September 2026); Morningstar: U.S. Midterms: What the November Midterm Elections Mean for the Markets (2026); ZDFheute: U.S. Midterms: Here’s Where the Polls Stand (2026).