JPMorgan Breaks Down U.S. Midterm Elections: 66% Probability of Democratic Sweep, Republican Control of Both Chambers Most Favorable for U.S. Stocks
Source: Jin10 Data
The official voting for the 2026 U.S. midterm elections began nationwide on November 3, with Wall Street starting to assess the impact of different political outcomes on stocks, bonds, and the technology sector.
JPMorgan conducted scenario analysis for four post-election congressional power combinations. The results show that Democrats simultaneously regaining control of both the House and Senate has the highest probability at 66%; the probability of Democrats controlling the House while Republicans hold the Senate is 26%; the probability of Republicans continuing to control both chambers is only 7%; and the lowest probability, at 1%, is for a split government with reversed chamber control.
However, the most probable outcome does not necessarily translate to the best performance for the stock market. JPMorgan estimates that if Republicans retain control of both chambers of Congress, the S&P 500 index could actually rise by 1% to 1.25%, outperforming the other three scenarios.
This assessment aligns somewhat with historical experience. Previous analyses by CNBC on market performance following U.S. elections have also shown that U.S. stocks typically deliver positive returns after the polls conclude. Nevertheless, different political configurations can still alter market expectations regarding regulation, fiscal spending, and risks related to corporate investigations.
Four Election Outcomes and Their Market Impacts
I. Democratic Sweep of Congress: Probability 66%, S&P 500 Index May Fall 0.25% or Rise 0.50%.
This is the outcome JPMorgan deems most likely, meaning Democrats simultaneously win control of both the House and Senate.
Under this scenario, the S&P 500 index is expected to either fall 0.25% or rise 0.50%.
The AI industry may be the first to feel the impact. Markets worry that with Democrats fully controlling Congress, they may push for stricter regulations limiting data center construction and tech company expansions, potentially triggering sell-offs in AI-related stocks.
However, JPMorgan believes that even if Congress passes legislation restricting the AI industry, it is unlikely to gather enough votes to override President Trump's veto. Therefore, the firm advises traders to consider buying tech stocks on dips.
The bond market may react differently. With Democrats controlling Congress, fiscal deficit spending could decrease, placing downward pressure on long-term U.S. Treasury yields and potentially boosting bond prices.
Meanwhile, some corporate executives linked to Trump political contributions may face heightened risks of congressional investigations.
II. Divided Congress: Democrats Control House, Republicans Control Senate, Probability 26%, S&P 500 Index Expected to Rise 0.5% to 1%.
This scenario means Democrats regain the House, but Republicans continue to hold control of the Senate.
JPMorgan expects the S&P 500 index to potentially rise 0.5% to 1%.
Markets may welcome this divided power dynamic, as congressional legislation is prone to gridlock, making it difficult for either party to unilaterally push major policies or expand government spending.
Nevertheless, with Democrats controlling the House, government fiscal matters may still be influenced by them, which could consequently drive down long-term Treasury yields.
Additionally, the risk of congressional investigations for certain companies and their leaders will not disappear.
III. Republican "Red Wave": Probability 7%, S&P 500 Index Expected to Rise 1% to 1.25%.
The likelihood of Republicans continuing to control both the House and Senate is relatively low, with JPMorgan assigning a probability of only 7% to this scenario.
However, if this outcome materializes, the S&P 500 index could rise 1% to 1.25%, making it the scenario with the strongest market performance among the four.
The main reason is that continued Republican control of Congress means markets won't immediately face new regulatory risks from a changed congressional landscape, and tech companies may avoid additional policy pressures resulting from shifts in political power.
But this scenario also carries potential risks. Trump may continue military actions against Iran, and federal deficit spending could further increase, pushing long-term Treasury yields higher.
IV. Reverse Divided Congress: Republicans Control House, Democrats Control Senate, Probability 1%, S&P 500 Index Expected to Rise 0.25% to 0.75%.
This is the least likely outcome according to JPMorgan, with a probability of only 1%.
Under this scenario, the S&P 500 index is expected to rise 0.25% to 0.75%.
Divided control of Congress means legislation will still face hurdles, but it may also spark more intense budget battles, potentially leading to a federal government shutdown.
Furthermore, with Democrats holding the Senate, they retain the authority to conduct congressional investigations, meaning relevant companies and individuals may continue to face scrutiny.
What the Market May Be Waiting For Is the Fade-Out of Political Uncertainty
Looking at the four scenarios, JPMorgan's projections highlight a noteworthy characteristic: although a Democratic sweep of Congress is the most likely to occur, its expected bullish impact on U.S. stocks is limited. Conversely, the scenario where Republicans fully retain control of both chambers—despite having only a 7% probability—could yield the largest short-term gains.
The predicted performance for the two divided government scenarios falls between these extremes, with the S&P 500 index expected to rise 0.5% to 1% and 0.25% to 0.75%, respectively.
Different outcomes will also impact the market through various channels. AI regulation and corporate investigation risks may affect tech stock valuations, changes in fiscal spending could drive fluctuations in long-term Treasury yields, and the situation in Iran may further influence energy prices and market risk appetite.
Regardless of which political configuration ultimately emerges, the publication of election results will put an end to a prolonged period of policy uncertainty. For traders waiting for directional signals, perhaps this is precisely what the market urgently needs.