The upcoming US midterm elections on November 3, 2026, could reshape market dynamics depending on the outcome. With all 435 House seats and 35 Senate seats in play, key issues like the cost of living, AI's impact on jobs, and foreign policy are driving voter sentiment. Current polls suggest Democrats lead by around eight points nationally, while President Donald Trump's low approval ratings have raised concerns within the Republican Party.
ING Think outlines three potential scenarios. The first, a Republican revival where they retain both chambers, is deemed unlikely but would embolden Trump's America First policies. Expect stronger border enforcement, tariff adjustments, and increased military spending, particularly against Iran. Fiscal worries would intensify, with bond yields likely rising above 5.5% for the 10-year yield and 5% for the 2-year yield. The dollar would strengthen, but emerging markets and the euro could face pressure.
The second scenario, a split Congress with Democrats controlling the House and Republicans the Senate, aligns with current market expectations. This outcome would stifle Trump's legislative agenda, focusing his actions on foreign policy, trade, and national security. Fiscal dynamics remain a concern, with a potential debt ceiling crisis by mid-2027. Bond yields may ease at the front end but maintain an upside bias, while the dollar could weaken if a government shutdown drags on.
The third scenario, a Democrat clean sweep, is considered the most likely. Democrats would push back against Trump's policies on Iran, Israel, and tariffs, while pressuring him on Russia. This outcome would likely maintain policy stasis, with bond markets balancing fiscal deficits and inflation concerns. The dollar would remain steady, but a prolonged government shutdown could weigh on it in late 2027.