Midterm elections could jolt stocks as Democrats look poised to sweep Congress

Key points

• The stock market did not price in a Democratic sweep of Congress before Tuesday's midterm elections, leaving investors exposed to political risk into year-end.
• JPMorgan expects a blue wave to knock about half a percent off the S&P 500 on Wednesday, while Citigroup sees Republicans losing the House but keeping the Senate as a tailwind for equities.
• Analysts say a Democratic sweep could pressure AI and defense stocks while boosting healthcare shares, and a surprise loss by Texas Gov. Greg Abbott could spook the market.

The stock market did not price in a Democratic sweep of Congress heading into Tuesday's midterm elections, leaving investors exposed to political risk into year-end, CNBC reported. Prediction markets calling for a blue sweep appeared to be correct as results came in Tuesday evening.

Wolfe Research's Tobin Marcus said investors were signaling "begrudging acceptance" of a Democratic sweep but were not positioned for it. JPMorgan sees a blue wave knocking about half a percent off the S&P 500 on Wednesday, and overnight futures pointed to bigger losses.

What analysts expect

Citigroup strategists said Republicans losing the House but keeping the Senate could be a tailwind for equities into year-end. JPMorgan traders predicted up to a 1% pop on Wednesday if Republicans held the Senate, which was looking less likely. Wells Fargo's Sameer Samana said Republicans retaining both chambers could spur a rally.

BTIG's Jonathan Krinsky wrote that stocks often perform well in November during midterms because the S&P 500 is typically weak into the elections, and that this year's setup is the opposite. The S&P 500 has already posted double-digit gains in 2026.

Investors seem to have a significant dose of skepticism about whether the final outcome is going to be quite as favorable to Democrats as the polling suggests

— Tobin Marcus, head of U.S. policy and politics at Wolfe Research

Sectors in focus

A strong Democratic showing could add fuel to an AI stock sell-off on expectations of more data center restrictions, while defense shares could come under pressure on fears of spending limits. Goldman Sachs strategists said a Democratic Congress might limit data center tax incentives, but a national moratorium looks unlikely.

Wolfe's Marcus said healthcare would be the biggest focus, and Argent Capital Management's Jed Ellerbroek cited optimism about Democrats taking over as partly behind recent healthcare gains. Financials could grow more unstable under Democratic control, with Evercore ISI's Matthew Aks saying Democrats would target sectors central to consumer budgets.