Elections tend to bring something the market hates: uncertainty.
In just over a month, Americans will vote in the midterms to decide which party will control Congress for the remainder of Donald Trump’s term. Given the political roller coaster that has already characterized Trump’s second term in office, Wall Street is focused on the outcome and its potential impacts.
Historically, midterm elections often result in deadlocks, with each party controlling one chamber of Congress. This is typically an outcome Wall Street likes to see, leading to business continuity as investors pile into what’s already working.
And while JPMorgan sees this as a possibility, its strategists are considering two other outcomes, both of which will have major implications for markets.
“In the 2024 presidential election, it was easier to map the equity impact of potential policy priorities across sectors, industries, themes and factors,” strategist Dubravko Lakos-Bujas wrote in a note to investors. “However, the impact on stocks for upcoming midterms under election outcome scenarios will likely be more nuanced and favor stock selection.”
Here is the election playbook for three election outcomes that Lakos-Bujas and his team are considering.
Scenario 1: blocking
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Maintaining the status quo tends to be a favorable outcome for investors.
The possibility of a divided House or Senate would make it extremely difficult for the White House to pass most legislation. This is good news for anyone worried about excessive government spending, tighter regulations or big tax increases.
“Congressional gridlock has been associated with positive S&P 500 returns since 1950, whether based on the date of the election (+21% gridlock versus +18% single-party control over a two-year term in Congress) or the start date of the new Congress (+25% gridlock versus +18% single-party control,” Lakos-Bujas noted.
His team sees the most benefit for defense contractors, health care companies and some tech stocks that aren’t heavily exposed to AI data center construction, which could be blocked if Democrats take either branch.
Some of the notable names in the bank’s deadlock basket include:
Scenario 2: Blue wave
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Prediction markets are heavily favoring the possibility of a Democratic wave in November, with odds currently hovering near 88% on Polymarket, which defines a blue wave as Democrats winning more than 218 seats in the House of Representatives and more than 49 seats in the Senate.
However, this does not necessarily mean a total policy reset, the bank said.
“Rather than enabling a broad Democratic agenda,” Lakos-Bujas said, “a blue wave would likely alter the political landscape at the margins through negotiation funding, oversight, and efforts to preserve or dismantle existing policies.”
That said, his team believes healthcare stocks will benefit, as a Democratic Congress could reverse the Medicaid cuts contained in Trump’s One Big Beautiful Bill Act (OBBBA). They also see a blue wave as a bullish indicator for the clean energy sector, particularly for renewable energy resources.
Here are some of the stocks highlighted by analysts in their blue wave basket:
Scenario 3: Red wall
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Lakos-Bujas and his team see Republicans maintaining control of both houses of Congress as the most optimistic scenario for tech stocks. The result would likely mean fewer barriers to building data centers, a hot spot in the election that many Democratic candidates campaigned against.
“If Republicans retain control of Congress, it would likely provide the most favorable progressive federal policy environment for AI and infrastructure development through policy continuity, potential fiscal expansion, deregulation, and faster federal authorization,” he added.
However, they also see big benefits for all businesses that could benefit from a looser regulatory environment. If Republicans retain control, it should benefit sectors such as traditional energy and nuclear power, finance and defense, analysts say.
Here are some of the notable actions in the red wall basket:
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