The short answer is the midterms are unlikely to have a major impact on the markets as AI investment and corporate earnings are likely to remain much more important drivers than which party controls Congress.
The midterms are more likely to change the constraints on President Trump than reverse the direction of policy. A Democratic victory in either chamber would block further Republican party-line legislation, including tax and spending measures that can currently pass through budget reconciliation without a 60-vote Senate majority. However, Democrats would face their own constraint: Trump could veto legislation seeking to reverse existing policies.
Oversight, not reversal
The midterms are still important for how the administration runs. A Democratic House or Senate could launch investigations, demand documents and testimony, exposing decisions by the administration to public scrutiny, and withhold agreement to new or expiring funding. A Democratic Senate could also block presidential appointments. These powers could slow the administration’s agenda and force negotiated concessions, even without major new laws. As it stands right now, the Democrats are poised to make some gains in both chambers with prediction markets favoring a Democratic majority, or a Blue Wave.
Source: Polymarket, “Balance of Power: 2026 Midterms” market. Daily prices from July 19, 2025 to October 21, 2026. Prediction market prices reflect traders’ implied probabilities and are not a forecast by Louisbourg Investments.
The likely result is legislative gridlock rather than a wholesale reversal of policy. Existing laws, including the One Big Beautiful Bill Act (OBBBA), would remain in place unless amended through a negotiated agreement which would require Republican support. The distinction between Democrats winning one chamber and both is consequently smaller than the distinction between continued Republican control and divided government. Bipartisan agreements would remain possible, while trade policy and other executive actions would continue to generate uncertainty.
Beyond Washington: state races and data centers
The midterms also extend beyond Washington: 36 states will elect governors in November, alongside numerous state legislative and local races. This is almost more important than the federal election as it could have a significant impact on the pace of data center buildouts, which is the primary economic driver of U.S. economic growth right now.
State and local authorities influence construction approvals, tax incentives, water access and the conditions under which utilities supply electricity to new facilities. Concerns about electricity bills and other community costs have prompted candidates in both parties to advocate tighter requirements, with some supporting temporary moratoriums. With promises made by candidates, time will tell how these promises are kept after the election. Stricter conditions could delay construction, shift projects between states and require developers to bear more infrastructure costs. This could affect the timing and profitability of investment across technology, utilities and equipment suppliers, even if demand for AI remains strong. Existing data centers with secured power could benefit as competing capacity becomes harder to build, favoring hyperscalers and neoclouds with capacity already secured.
Our view
At Louisbourg, we do not see election outcomes as a basis for timing the market. Disciplined investing means assessing new information as it emerges and adjusting portfolios where policy developments materially change earnings expectations, valuations or investment risks.
This writing is for general information purposes only. It is not intended to provide legal, accounting, tax or financial advice. For complex matters you should always seek help from a professional. Any opinions expressed are my own and may not reflect those of Louisbourg Investments.
