Global Market Analyst
The midterm elections are fast approaching, with Americans set to head to the polls on 3 November 2026. President Trump is not on the ballot, with the results instead determining control of Congress, which is currently held by the Republican Party. The most probable result according to polls is divided government, with at least one chamber of Congress (the House or the Senate) controlled by the Democratic Party. Importantly, even if Democrats take both chambers, they are unlikely to secure a large enough majority to override presidential authority. As a result, we expect limited change to policy direction in the near term.
What is needed to “win”
In the Senate, each US state appoints two senators. US senators serve six-year terms, meaning that roughly a third of the 100 Senate seats are up for grabs at every federal or midterm election. Currently, the Republicans control the Senate, and of the 35 seats up for election this year (including special elections in Florida and Ohio), 22 are held by Republicans. To win control of the Senate, the Democrats would need a net gain of four seats.
In the House of Representatives, members represent individual districts within a state and serve two-year terms. Each of the 435 House seats is up for election in November. Currently, the Republicans control the House. The Democrats have 214 seats and there are two vacancies, one of which was Democrat held. If the Democrats keep one seat for a total of 215, they only need an additional three to win a majority in the House.
Divided government looks to be the most likely outcome
A post-2024 redistricting exercise should have played in favour of the Republicans at this year’s midterms. However, current polling suggests that the Republicans face an uphill battle to retain control of the House. President Trump’s approval ratings have deteriorated sharply with the Middle East conflict having pushed gasoline and diesel prices higher, as well as the cost of mortgages and consumer debt. Concerns over access to and the affordability of healthcare, as well as concerns over Immigration and Customs Enforcement (ICE), have also weighed on the Trump administration’s popularity in parts of the country.
History shows that the president’s party almost always loses ground in the House, as has been the case in 20 of the past 23 midterm elections. On average the president’s party has lost 27 House seats. With only a narrow House majority to begin with, and low approval ratings, Republicans face a challenge to maintain control. While a loss for the Republicans in the House appears highly likely according to polls, the margin of victory for the Democrats will be important to watch, as it could shape the party’s direction heading into the 2028 presidential race.
The battle for the Senate is a much closer race. Of the 35 seats up for election, the majority are considered safe for either party, meaning the outcome will hinge on a handful of competitive races. To take control of the Senate, the Democrats will need to hold onto their current seats in Georgia, Michigan, Minnesota and New Hampshire. They must also win four additional seats from those currently held by Republicans. Potential targets include North Carolina, Maine and Ohio – where the Democrats are leading in the polls – as well as Alaska, Texas, Kansas and Iowa.
Some factors could lean in the Democrats’ favour. Canada is the top trading partner for 26 US states, including the battleground states of Iowa, Maine, North Carolina and Ohio. Elevated US-Canada trade tensions may add to inflationary pressures in these states at a time when affordability is among voters’ top concerns. In addition, diesel prices at $6 a gallon just as farmers enter harvest season could weigh on Republican support in the Midwest farming states. Polls suggest the Democrats have the necessary momentum to regain the Senate, but the path is still difficult.
What this means for policy: Three scenarios
Scenario one: Republicans lose the House but retain the Senate
If the Republicans lose the House, advancing their domestic policy agenda becomes materially more difficult, regardless of the Senate outcome. Fiscal policy, in particular, is an area where the Democrats would have some leverage. In order to fund the government and increase the debt ceiling, which is expected to be reached by mid-2027 (though the Treasury’s “extraordinary measures” could extend this by another six to nine months), President Trump requires congressional approval.
Republicans are considering “Reconciliation 3.0” to push through policies on a party line vote before the end of the year. This could be used to raise the debt limit and/or to boost spending on areas such as defence, housing and healthcare. Passage before the midterms appears unlikely. While reconciliation measures could pass in the lame-duck period ahead of the new Congress taking office in early 2027, it is doubtful Republicans would be able to unify behind any meaningful package. The greater risk, therefore, is of political brinkmanship around the next debt limit deadline, leading to tougher budget standoffs and potential shutdown threats. Pressure from the bond market should ultimately act as a constraint, limiting the scope for any material fiscal expansion.
With domestic policy options limited, President Trump may focus on areas where he has greater discretionary authority, such as foreign policy and trade. The ongoing tit-for-tat trade war between the US and Canada illustrates the administration’s willingness to use protectionist measures against countries with which it has a trade deficit. How active the administration remains in foreign affairs more broadly is less certain, with the Middle East conflict having drawn criticism from the “America First” isolationist faction of the Republican Party. On balance, however, the administration’s reduced ability to shape domestic policy could mean we see a continued focus on foreign affairs.
A Democratic-controlled House would also be expected to substantially expand congressional oversight of the administration. Committee chairs would gain subpoena authority and control over investigative agendas, increasing scrutiny of the actions of the executive. While impeachment becomes procedurally more plausible under Democratic House control, the removal of a president from office would also require a two-thirds supermajority in the Senate, which is a highly unlikely scenario.
Scenario two: Republicans lose both the House and Senate
Even if Democrats were to win control of both chambers, passing major legislation would likely remain difficult. Overriding a presidential veto requires a two-thirds supermajority in both the House and Senate – an outcome that appears improbable – so President Trump would retain substantial leverage. A 60-vote supermajority, meanwhile, is required to overcome a Senate filibuster – a tactic used to delay or block a vote by extending debate indefinitely. Democrats might be able to secure limited concessions on select healthcare or entitlement priorities, but it seems unlikely they could enact major legislation on regulatory, healthcare or climate issues over the next two years.
Increasing AI regulation is one area that has attracted bipartisan support from voters. Congress and state lawmakers are considering a wide range of proposals to tighten AI regulation, but there is little consensus on which measures have enough support to become law. At the federal level, efforts to limit AI-related data centre construction would likely be met with a presidential veto, but Democratic gains could increase momentum for state-level restrictions, particularly in blue (Democratic-controlled) states.
Senate control would also give the Democrats some additional powers. Most importantly, the Senate confirms presidential nominations by simple majority, so a Democratic majority could materially shape (or constrain) President Trump’s appointees to the Supreme Court, lower courts or the Federal Reserve (Fed). This, in turn, would reduce the risk of challenges to the independence of key institutions, particularly the Fed.
Scenario three: Republicans retain control of both the House and Senate
In the least likely of the three scenarios, the Republicans retain the governing trifecta – the Presidency, the House and the Senate. Under a Republican victory, the administration has promised to deliver $5,000 cheques to every American adult. But at an estimated cost of $1.20 trillion to $1.35 trillion, this promise is unlikely to gain the support of the more fiscally minded members of the Republican Party. The administration may also seek to advance the SAVE America Act, which is intended to curb voter fraud, though it is similarly unlikely to secure sufficient votes for passage.
What does all this mean for 2028?
The 2026 midterms will serve as an important signal for the policy direction heading into the 2028 presidential cycle. Results in key races are likely to shape each party’s internal trajectory. For Democrats, if more progressive candidates win high-profile Senate contests in the Midwest (for example, Abdul El-Sayed in Michigan), it could bolster the argument for a more left-leaning presidential nominee in 2028, such as Alexandria Ocasio-Cortez.
For Republicans, a central question after November will be whether candidates can win while closely aligning with President Trump or whether they need to establish somewhat more independent identities. The midterm results will help determine whether the party maintains continuity with the administration’s approach or pivots in a different direction.
More of the same… for now
Overall, in a divided government scenario – whether or not it is a blue sweep – Washington would likely enter a period of policy gridlock. The Trump administration would face greater oversight and scrutiny, while Democrats’ capacity to deliver meaningful change would remain constrained by presidential powers. Reduced ability to shape domestic policy increases the risk that we continue to see an unpredictable US presence on the global stage, as well as even greater reliance on executive orders.
Investors should not be derailed, however. As we have learned in the first two years of Trump 2.0, the more chaotic the political backdrop, the more likely governments globally are to administer fiscal stimulus. This helps explain why we expect markets to continue to shrug off political noise.