Markets brace for election outcome in US

NEW YORK

Global markets are assessing the potential impact of the U.S. midterm elections, with analysts warning that a Democratic victory could complicate President Donald Trump’s agenda during his final two years in the White House and raise the prospect of legislative gridlock.

A Democrat win would deal a hefty blow to Trump’s agenda for his final two years in the White House, and analysts warned it would likely mean very little gets done in Washington in that time.

“A narrow blue wave may be largely priced in,” said Chris Weston at Pepperstone. “A commanding one could force markets to rethink Trump’s remaining policy agenda and the political trajectory into 2028.

“Democratic control of Congress would increase the potential for legislative gridlock, fiscal brinkmanship, debt-ceiling disputes, and congressional investigations.”

However, he added that “the president would retain considerable executive authority, so the implications for individual sectors are far from straightforward”.

The prospect of Congress coming to a standstill weighed on the dollar and Treasury yields, with observers pointing out that such a scenario would restrict spending.

“Typically, when we get a divided government, it has been historically pretty good for Treasuries,” said Brij Khurana at Wellington Management.

History suggests the outcome may not matter much for markets both in and outside the U.S. Looking back to 1970, the S&P 500 has had a positive return every time in the six months following a midterm election, according to Brock Weimer, an analyst at Edward Jones.

Still, a significant change could have implications for the AI boom, analysts said.

“The AI trade has spent months worrying about financing costs. Now it may have to start worrying about the politicians controlling the power grid,” Stephen Innes of SPI Asset Management said in a commentary.