The US mid-terms might matter…a bit

US mid-term elections are unlikely to dominate markets because growth, inflation, monetary policy, earnings and fiscal conditions matter more than the electoral result.

• Since 1982, US stocks have generally risen after mid-terms, but the article attributes this to broader fundamentals rather than Washington politics.
• The 1994 elections coincided with the Clinton-era economic expansion, the 2010 elections followed the Global Financial Crisis and major monetary and fiscal stimulus, and the 2018 elections occurred amid robust earnings growth and deregulation.
• Prediction-market expectations of a Democratic Senate victory have become highly correlated with diesel prices between 28 September 2025 and 13 October 2026, reflecting shared geopolitical and energy-price pressures rather than a direct causal link.
• Continued Republican control could support AI, financials and traditional energy through lighter regulation, but could also increase Middle East tensions and energy prices; a Democratic victory could bring tighter AI regulation but potentially reduce geopolitical risk and inflation.
• US national debt has exceeded USD 40 trillion, while neither party is addressing major entitlement costs, implying continued deficits, Treasury issuance and upward pressure on long-term yields.

Takeaway: Investors should avoid major portfolio repositioning based solely on the mid-terms and maintain diversification, potentially including insurance-linked bonds, gold and short-dated Treasury bills yielding above 4% for US dollar investors, while recognising that elections may still generate volatility around AI and energy.