US midterms 2026: A new balance of power

The Democratic takeover of Congress should constrain fiscal expansion while shifting policy risk toward executive actions, with growth, inflation and interest rates remaining the main market drivers.

• Democrats now control both chambers after Republicans lost their congressional majority, reducing the administration’s ability to advance spending, tax and regulatory plans.
• The initial reaction showed the S&P 500 down 0.5%, the US 10-year Treasury yield at 4.94%, and the US dollar at 0.82 CHF at 7am CET.
• A tougher US response to Iran could lift oil prices and inflation through tariffs, sanctions or other executive measures.
• Treasuries may benefit from tighter fiscal checks, while persistent deficits and heavy issuance could limit declines in long-term yields.
• Equity valuations and high bond yields leave limited room for a post-election rally, increasing the importance of earnings growth and financial conditions.

Takeaway: The election clarifies Washington’s political constraints, but investors should focus on growth, inflation, Fed policy, Treasury supply, the debt ceiling process and the administration’s use of executive powers.