What to Expect From the 2026 Midterm Elections

Gridlock after the 2026 midterms should limit broad legislation while supporting equities and durable themes such as AI infrastructure, U.S. manufacturing and healthcare.

• Historical equity returns favor the post-midterm period: the S&P 500 delivered an average 15.9% price return in the third year of the presidential cycle since 1943, rising to 17.2% under a Republican president with divided government, versus 8.9% across all calendar years since 1940.
• Kalshi pricing on September 18 implied a 58.0% probability of a Democratic sweep, 31.8% for a Democratic House with a Republican Senate and 12.5% for a Republican sweep, indicating that markets expect divided government.
• AI infrastructure remains supported by data-center investment and executive action, but regulation must address cyber risk, model safety and competition from China; seven of the ten most-used OpenRouter models by token volume in August 2026 were Chinese-built open-weight models.
• U.S. manufacturing momentum is becoming visible in the data: the ISM Manufacturing PMI reached 55.6 in July, its highest level since May 2022, with 15 of 18 industries expanding and the employment index returning to expansion after 33 months.
• Healthcare faces less campaign pressure and a lower probability of sweeping legislation, while GLP-1 drugs and advances from Merck and Moderna in personalized cancer vaccines are improving the sector's narrative; healthcare's S&P 500 weight is near a multidecade low.

Takeaway: Investors should not stay on the sidelines because of election uncertainty, since executive action and capital spending can sustain AI and manufacturing themes while healthcare offers a contrarian opportunity, although historical returns are not predictive and political volatility may persist.