Elections typically introduce something markets dislike: uncertainty.
In just over a month, Americans will head to the polls for the midterms, determining which party will control Congress for the remainder of Donald Trump’s term. Given the policy turbulence that has marked Trump’s second period in office, Wall Street is intensely focused on the results and their potential market implications.
Traditionally, midterm elections often result in divided government, with each party controlling one chamber of Congress. This scenario is generally welcomed by Wall Street, leading to a continuity-driven investment approach as investors gravitate toward strategies that have already proven successful.
While JPMorgan considers this outcome plausible, its analysts are also examining two additional possibilities, each carrying significant consequences for financial markets.
“In the 2024 presidential election, it was easier to map the equity impact of potential policy priorities across sectors, industries, themes and factors,” wrote strategist Dubravko Lakos-Bujas in a communication to clients. “However, the equity impact for the upcoming midterms across various election outcomes will likely be more complex and favor active stock selection.”
Below is the investment playbook for the three election scenarios that Lakos-Bujas and his team are monitoring.
Scenario 1: Political Stalemate
How to trade it
Maintaining the status quo often proves favorable for investors.
A split between the House and Senate would severely limit the White House’s ability to advance most legislative initiatives. This bodes well for those concerned about excessive government expenditure, increased regulation, or steep tax hikes.
“Since 1950, congressional deadlock has correlated with stronger S&P 500 performance, both when measured from election dates (+21% gridlock vs. +18% single-party control over a two-year congressional term) and from the start of a new Congress (+25% gridlock vs. +18% single-party control),” Lakos-Bujas observed.
His team identifies the greatest upside potential in defense contractors, healthcare firms, and certain technology stocks not heavily involved in the AI data center expansion, which could face delays if Democrats gain control of either chamber.
Notable holdings in the bank’s stalemate portfolio include:
Scenario 2: Democratic Surge
How to trade it
Prediction markets are currently showing strong confidence in a Democratic victory in November, with probabilities near 88% on platforms like Polymarket, defining a blue wave as Democrats winning over 218 House seats and more than 49 Senate seats.
Nevertheless, the firm cautions that this does not automatically imply a complete policy overhaul.
“Instead of enabling a sweeping Democratic agenda,” Lakos-Bujas explained, “a Democratic wave would more likely adjust the policy environment incrementally through budget negotiations, oversight activities, and efforts to sustain or reverse existing policies.”
That said, his team expects healthcare stocks to benefit, as a Democratic Congress might undo the Medicaid reductions included in Trump’s One Big Beautiful Bill Act (OBBBA). Additionally, analysts view a Democratic wave as a positive signal for the clean energy sector, particularly in renewable resources.
Stocks highlighted by the analysts in their Democratic surge portfolio include:
Scenario 3: Republican Control
How to trade it
Lakos-Bujas and his team consider Republican retention of both congressional chambers the most optimistic outlook for technology stocks. This outcome would likely remove barriers to the data center expansion, a central campaign issue opposed by many Democratic candidates.
“Should Republicans retain congressional control, this would likely offer the most supportive federal policy framework for advancing AI and infrastructure projects through policy consistency, possible fiscal stimulus, deregulation, and accelerated federal approvals,” he added.
Additionally, the analysts expect companies benefiting from a relaxed regulatory environment to perform strongly. Continued Republican control would favor traditional energy and nuclear power, financial institutions, and defense sectors, according to the analysts.
Key stocks featured in the Republican control portfolio include: