Prediction markets favor a Democratic sweep on Nov. 3, but Morgan Stanley expects tariffs and tax policy to stay broadly in place
Prediction markets favor Democrats in both chambers. Morgan Stanley says gridlock and a presidential veto limit what changes, though AI and data centers could face more scrutiny.
By James Mitchell ·
Why it matters: Morgan Stanley expects tariffs and tax policy to stay broadly in place even if Congress flips, while more AI scrutiny could raise market volatility.
For information only, not investment advice.
Voters go to the polls on November 3, and trading on prediction markets Kalshi and Polymarket makes a Democratic sweep of the House and Senate the most likely outcome, Reuters reported. Russell Investments, citing Kalshi data as of Oct. 10, put the odds of Democrats winning at least one chamber at 90%.
What changes for your money? Morgan Stanley said divided government would make large, partisan legislation difficult, the president can still veto bills, and tariffs, tax policy and deregulation would remain broadly in place. The bank expects more noise over government funding and the debt ceiling than actual change.
Where a Democratic Congress could matter is AI. Democrats are expected to apply more scrutiny to AI and data centers, which could raise market volatility, Reuters reported, though analysts doubt a bill that significantly impedes data center expansion would become law. "There will be congressional hearings. There will be investigations," Stifel's Brian Gardner told Reuters.
History offers some comfort, not a promise. The S&P 500 has gained an average of 13% in the 12 months after midterms since 1930, Morgan Stanley said, and about 23% under a Republican president with a split Congress. Russell puts the post-midterm rally at around 8% over 180 days. It sees the biggest risk in a scenario markets haven't priced: Republicans keeping full control, which it says would likely run the economy hotter.
Sources
- Analysis-Investors see risk from US midterms to AI trade as data center backlash builds, Reuters (via Investing.com)
- Analysis-Investors see risk from US midterms to AI trade as data center backlash builds, Reuters (via U.S. News & World Report)
- Midterm Elections 2026: What Could Change for Markets, Morgan Stanley
- 2026 Midterm Elections and Markets: What Investors Should Watch, Morgan Stanley
- U.S. midterm scenarios and investment implications, Russell Investments
Tags: elections · congress · ai · tariffs-trade · analysts