Americans vote on Tuesday in the midterms, held halfway through a president’s four year term, with all 435 House seats and 35 Senate seats up for grabs. Republicans hold narrow majorities in both chambers, but frustration over living costs and the war with Iran has pushed Donald Trump’s approval rating to a record low. US election data firm Decision Desk HQ gives Democrats a 79% chance of winning the House, while prediction markets put their Senate chances above 60%. Losing Congress would not strip Trump’s powers, but it would limit them: Democrats could launch investigations, block legislation and use spending deadlines as leverage, while Trump would keep his veto and govern through executive orders.
History favours shares. The S&P 500 has risen in the 12 months after every midterm since 1950, as the uncertainty of the vote clears. But with oil, bond yields and the AI selloff already rattling markets, fund managers are hoarding cash and buying insurance against a sharp fall, because each outcome carries a different risk. A Republican hold could spark a short rally on hopes of more stimulus, including Trump’s proposed $US5000 payments to adults, but would do little to fix high debt and inflation. A split Congress would likely rein in government spending, easing deficit fears, but could trigger a showdown next year over raising the US borrowing limit, with a default the worst case. A Democratic sweep would bring tougher scrutiny of big business and calls for tighter guardrails on AI, which could hit the tech stocks that have driven Wall Street’s gains.
The election also won’t settle the market’s biggest risk: Iran. The US and Israel are reportedly planning new strikes after the vote, which would push oil higher. Even a Democratic Congress would have little power to stop them, since Trump can veto any attempt to end the war.
For Australians, the US makes up more than half of the country’s overseas share investments, much of it through super, and the ASX tends to move with Wall Street. ASX companies with large US operations are exposed to any policy shift, while lithium producers could benefit if Democrats revive electric vehicle and battery incentives.
