Markets often perform well after midterms, but Wall Street analysts think fiscal fights could affect stock market

Markets After Midterms

The elections come as lawmakers face persistent inflation, high energy prices and rising fiscal debt. For investors, however, the political outcome could provide a boost. Magdalena Ocampo, a market strategist at Principal Asset Management, said volatility around the vote was possible. She added that markets have historically performed well in the year after midterms as uncertainty recedes and focus returns to the economic outlook.

Chris Low, chief economist at FHN Financial, said less change could make the environment more predictable, giving companies more room to invest in longer-term projects. He said that could benefit earnings.

Fiscal Risks And Volatility

Ed Yardeni, president of Yardeni Research, said the prospect of political standoffs could concern bond investors already worried about the country’s fiscal path. He warned that prolonged shutdowns and disputes over government funding could lift Treasury yields and weigh on stock valuations.

Yardeni also said volatility could continue if President Trump relies on executive authority to pursue his priorities. Even if Democrats controlled Congress, he said, they would have limited power to restrain him.

Possible Democratic Priorities

A Democratic sweep could have consequences beyond financial markets, including efforts to block regulators appointed by Trump, according to Jaret Seiberg, a financial policy analyst and managing director at TD Cowen. Seiberg said a Democratic Senate majority would give Sen. Elizabeth Warren of Massachusetts more influence as chair of the Senate Banking Committee. She would replace Sen. Tim Scott, a South Carolina Republican, and could have greater latitude to advance populist legislation.