11 November 2026
Sarthak Inganhalli, Investment Analyst
The Democrats’ sweeping victory in the US midterm elections marks a significant shift in Washington’s political balance. For investors, however, the central question is not simply who controls Congress, but whether the result materially changes the economic and corporate fundamentals that ultimately drive market returns. A divided government is likely to bring greater scrutiny of the administration’s agenda and make new legislation harder to pass. Yet its influence on markets may be less direct than the immediate political headlines suggest. Political developments can trigger short-term market movements, but separating political uncertainty from underlying economic trends remains important when assessing the broader investment outlook.
With Democrats controlling Congress from January 2027, the administration will face a more challenging legislative environment. President Donald Trump retains veto powers, while Democrats do not have the numbers required to override a veto. This limits the scope for a wholesale reversal of existing policy. Trade, tariffs and foreign policy also remain largely within the President’s remit, meaning the election result does not automatically remove uncertainty in these areas.
The more immediate consequence is likely to be a shift in legislative priorities. Further tax cuts may become harder to secure, while proposals for spending reductions could face greater resistance and be moderated. Congressional scrutiny of the administration is also likely to intensify, increasing the potential for political friction and delays. These developments may affect sentiment, but do not necessarily translate into a material deterioration in the operating environment for companies.
Historical market performance following midterm elections has generally been supportive, including during periods of divided government. US equities have risen in the 12 months after midterm elections in approximately 95% of cases since 1938, with average gains in the low-to-mid teens. Returns have tended to be stronger under a divided government. This is not a reliable forecast for the current cycle, but it does underline an important distinction: political change does not, by itself, determine the direction of equity markets. Earnings, interest rates, economic growth and valuations remain more important over the longer term. Ultimately, the durability of any market reaction depends on whether political developments affect corporate cash flows, financing costs or investor confidence.
The AI debate is becoming more complex. Alongside investment returns and adoption, local communities are increasingly focused on data centres’ electricity demand, pressure on power grids and the potential impact on household energy bills. These concerns could prompt greater scrutiny and make projects harder to approve. However, opposition to data centres and AI infrastructure also carries an economic trade-off. Delayed or cancelled developments could constrain regional investment, limit job creation and reduce opportunities across construction, engineering, technology and supporting services. The challenge for policymakers is therefore to balance the demands on local infrastructure and communities against the potential economic benefits of continued investment.
The key question is whether the AI investment cycle can sustain its momentum. Planned data centre capacity additions are expected to reach 152 gigawatts by 2030, with the US accounting for 60–70% of global additions over the period. Much of next year’s pipeline is already committed, limiting the scope for near-term disruption. However, approximately 40% of pending US data centre capacity is located in states where newly elected governors have pledged to halt or pause construction or introduce moratoriums. This puts permitting, grid access and power costs firmly in focus.
Demand for computing capacity is estimated to be running at 1.5–2 times available supply. Restrictions could therefore increase the value of existing capacity. The greatest uncertainty appears further out, particularly for projects scheduled for 2028 and 2029. Investment may move elsewhere, although grid connections and power availability remain constraints. Some developments could be delayed, scaled back or relocated where infrastructure and community support are insufficient.
This does not necessarily signal a reversal of the AI investment cycle. Significant capacity is already under construction and commercial incentives remain substantial. However, the path forward may be less straightforward than optimistic forecasts imply. Valuations, capital expenditure discipline and the ability to translate investment into sustainable earnings will become increasingly important differentiators.
A divided Congress creates a mixed sector outlook. Consumer-facing businesses could benefit if proposed welfare reductions are moderated. Healthcare is less straightforward: hospitals, care providers and Medicaid insurers may gain, while pharmaceutical companies could continue to face drug-pricing pressure. Defence spending retains bipartisan support, particularly for munitions, missiles, drones and cybersecurity. Congress may nevertheless scrutinise military commitments, especially in relation to Iran.
Renewable energy policy may receive a more favourable hearing, while oil and gas producers could face tighter environmental oversight. Lower oil prices also reflect hopes of de-escalation in the Middle East, although geopolitical risks remain. Utilities face a more complex transition. Data centre demand requires investment in generation and networks, but the debate is increasingly about who bears the cost. If technology companies are required to shoulder more of the expense, utilities could benefit. Financial deregulation may progress more slowly, while lower bond yields could support property valuations.
Recent market movements have brought fixed income back into focus. Government bonds rallied as equities wobbled, regaining their appeal as a source of diversification and income, and a Congress less able to expand spending should help contain yields in the near term. Risks remain further out. Fiscal deficits, rising government debt and the renewed debt-ceiling debate could put pressure on bond markets and keep investors demanding higher compensation for holding longer-dated bonds. Inflation, economic growth and government financing requirements will remain central to the outlook for yields.
Oil has been more directly influenced by geopolitics. Brent Crude fell around 19% over the week, marking its largest weekly decline since 2020, as hopes of an end to the Iran conflict reduced the geopolitical risk premium. Renewed tensions could quickly reverse the move and alter the regional risk outlook. Gold, meanwhile, climbed above $4,100 an ounce over the week, supported by falling oil prices, a weaker US dollar and post-election political optimism. Its performance also highlights its potential value as a portfolio diversifier during periods of uncertainty. For UK investors, movements in the US dollar also matter. A weaker dollar can reduce the sterling value of unhedged overseas assets, even when their local-market returns are positive.
The election reinforces the importance of looking beyond political headlines when assessing investment opportunities. A divided Washington may constrain the domestic policy agenda and increase scrutiny of the administration, but its implications for corporate performance remain uncertain. Ultimately, earnings, balance sheets, valuations and the broader economic environment will continue to shape market returns.
For investors, this is not a reason to make abrupt portfolio changes. Maintaining diversification across regions, sectors and asset classes remains important, particularly given concentrated market leadership and uncertainty surrounding fiscal policy and inflation. Exposure to innovation remains relevant but should be balanced against valuation discipline and the ability of companies to convert investment into sustainable returns. Fixed income can also play a useful role in providing income and diversification.
The voters have delivered their verdict on Washington; for long-term investors, corporate performance and economic fundamentals will continue to have the final say.
This publication is intended to be Walker Crips Investment Management's own commentary on markets. It is not investment research and should not be construed as an offer or solicitation to buy, sell or trade in any of the investments, sectors or asset classes mentioned. The value of any investment and the income arising from it is not guaranteed and can fall as well as rise, so that you may not get back the amount you originally invested. Past performance is not a reliable indicator of future results. Movements in exchange rates can have an adverse effect on the value, price or income of any non-sterling denominated investment. Nothing in this document constitutes advice to undertake a transaction, and if you require professional advice you should contact your financial adviser or your usual contact at Walker Crips. Walker Crips Investment Management Limited is authorised and regulated by the Financial Conduct Authority (FRN:226344) and is a member of the London Stock Exchange. Registered office: 128 Queen Victoria Street, London, EC4V 4BJ. Registered in England and Wales number 4774117.
Important Note
No news or research content is a recommendation to deal. It is important to remember that the value of investments and the income from them can go down as well as up, so you could get back less than you invest. If you have any doubts about the suitability of any investment for your circumstances, you should contact your financial advisor.
The value of investments can fall as well as rise. Investors may get back less than invested. Past performance is not a reliable indicator of future results.
The value of investments can fall as well as rise. Investors may get back less than invested.
