The final midterm election results are still being tallied, but projections show a clear “blue wave.” According to Strategas Research, every demographic group moved away from Republican candidates, reflecting a 13% shift to Democrats relative to the 2024 election. Notably, of the past 11 elections, this is the tenth where voters have ousted the party previously in control.
Democratic control is expected to shift the policy agenda toward health care, consumer affordability, data-center regulation, and tighter fiscal conditions.
Health care will likely be the top priority, with efforts to reverse Medicaid and Affordable Care Act cuts and increase National Institutes of Health funding. Pharmaceutical companies may face proposals for broader drug-price controls, creating headline risk even if legislation is unlikely to pass.
Financials could confront renewed pressure for a 10% cap on credit-card interest rates, while near-term deregulation may provide an offset.
Data-center development faces the clearest sector-specific risk, including reduced tax incentives, new environmental conditions, state-level moratoriums, higher costs, and potentially slower capital spending. A bipartisan framework could preserve incentives for satisfying environmental requirements, but the sector’s political risk has clearly increased.
Fiscal and monetary conditions are expected to tighten in 2027 as stimulus fades, capital expenditures slow, and Federal Reserve policy remains restrictive. Tariff policy, particularly on food, could be reconsidered after becoming a major electoral liability for Republicans. Democrats are also expected to use upcoming budget and debt-ceiling negotiations to seek policy concessions.
Historically, the average decline in midterm election years is 19%, and in the year after, the S&P 500 has not declined since 1938. Midterm elections have acted as clearing events for markets, providing a constructive 12-month equity outlook despite possible volatility around fiscal negotiations, trade policy, and monetary policy at the Fed.
Immediate priorities for the Trump administration, beyond addressing the Iran War and oil flows through the Middle East, include raising the debt ceiling and defense-spending cap during the lame-duck session—the session after a November election before the newly elected Congress is officially sworn into office in January.
We will share more midterm election commentary in Friday’s edition of Investment Insights. For those not subscribed to the newsletter, subscribe here: https://fideliscapitalpartners.substack.com/
Finally, we encourage you to review the October Monthly Market Recap for more analysis from the Investment Committee.
