U.S. midterm elections may be closer than expected

The 2026 U.S. midterms are more likely to produce a narrow Democratic House majority and a Republican Senate majority than a sweeping Democratic victory, with limited market damage.

• Fewer than 20 of the 435 House districts are genuinely competitive because partisan gerrymandering has entrenched most seats, making a 40-to-60-seat swing unlikely.
• The author expects Democrats to win the House by only a handful of seats, while Republicans retain the Senate despite polls becoming more competitive after the Iran war, higher energy prices and inflation weakened President Trump’s approval ratings.
• Affordability is expected to decide the election: although annual inflation is around 3.7% versus more than 9% under President Biden, consumers have faced cumulative price increases of 30% or more since 2021 for essentials such as food, utilities and gasoline.
• A split government would bring legislative gridlock, temporary debt-limit and budget confrontations, and likely investigations of Trump, while bipartisan action could still emerge on housing, drug prices, Affordable Care Act subsidies and AI data centers.
• Historically, the S&P 500 has gained an average 15% in the 12 months after midterms since 1950; Capital Group’s analysis of 1933–2025 data also finds little relationship between congressional party control and stock returns.

Takeaway: Investors should expect political noise and short-term volatility but avoid changing long-term equity objectives solely because of the election, since earnings and company valuations have mattered more than partisan control.