What the Democratic Midterm Sweep Could Mean for Markets

A Democratic sweep of Congress could modestly support growth and consumer spending while increasing regulatory risks for AI infrastructure, leaving Morgan Stanley bullish on global equities.

• The One Big Beautiful Bill Act includes about $900 billion of Medicaid reductions and $200 billion of SNAP cuts over the next decade, which Democrats could delay, soften or reverse.
• Morgan Stanley expects federal fiscal deficits to remain around 6% of GDP, while delayed spending cuts could modestly increase Treasury issuance in the two- to seven-year maturity range.
• Executive-led policies on geopolitics, export controls, deregulation, trade and the USMCA review are likely to remain broadly unchanged, sustaining policy uncertainty.
• Texas Governor-elect Gina Hinojosa supported a moratorium on new data center approvals, raising the risk of project delays and more fragmented state regulation even as the broader AI capex cycle remains intact.
• Since 1982, large-cap U.S. stocks have gained about 15% to 16% in the six months after midterm elections and 22% over the following year; the yen, Swiss franc and euro could strengthen against the dollar while the Australian dollar may lag.

Takeaway: Morgan Stanley maintains an overweight in global equities and an underweight in core bonds, with continued AI investment expected to support earnings, while investors should monitor data center restrictions, healthcare policy, tariffs and geopolitical risks.