The outcome of the November U.S. midterm elections is unlikely to materially change S&P 500 fundamentals over the intermediate term under the scenarios considered by Citi, although the bank sees scope for different effects across individual sectors.
Citi characterised the election as a “fundamental non-event” for the broader index, while noting that changes in congressional control could influence expectations around areas including corporate taxation, artificial intelligence regulation and executive powers.
The bank’s analysis cited polling and prediction-market indicators showing increased prospects for a change in control of the House, with control of the Senate less certain. Citi said it would also not be surprised by a Democratic sweep.
Those observations reflect the bank’s interpretation of current indicators rather than a forecast of the election result.
Citi Assesses Political and Economic Indicators
Citi said President Donald Trump’s net approval ratings were below the pace recorded during his first term and also compared them with those of Barack Obama in 2014 and George W. Bush in 2006.
Both of those historical midterm elections resulted in changes in control of congressional chambers, although previous election outcomes do not determine what will happen in 2026.
The bank identified inflation, the economy and foreign policy as areas where Trump’s approval readings were weakest. It also cited diesel prices and views surrounding the Iran conflict as part of the current political backdrop.
Semiconductors and Consumer Stocks Among Sectors in Focus
Citi expects potential market implications to be more visible at the sector level.
The bank said semiconductor stocks have historically shown a relative preference for Republican control in its analysis, which it associated with the possibility of AI-related legislation.
However, Citi considers the probability of legislation materially disrupting the AI investment theme to be limited under the scenarios it assessed.
The bank also noted that consumer discretionary has been the weakest-performing sector during the current presidential term, with tariffs and gasoline prices among the factors affecting the sector.
Under a scenario in which Democrats gain control of both chambers, Citi said markets could begin incorporating potential policy changes after the 2028 election, including higher corporate taxes and additional restrictions relating to AI.
Citi also identified potential countervailing effects. The bank said limits on executive authority over tariffs and military action could be interpreted positively by financial markets.
These scenarios represent Citi’s policy analysis and do not establish which measures would ultimately be enacted.
Monetary Policy Remains a Key Consideration
Citi said historical experience indicates that monetary policy can have a larger influence on equities than midterm election results.
Referring to the period surrounding the 2018 midterms and subsequent market developments, the bank said “midterms were a relative sideshow versus the Fed.”
Citi therefore expects the election itself to have limited implications for overall S&P 500 fundamentals, while sector-specific policy expectations and broader macroeconomic factors could remain more relevant.
The market impact will ultimately depend on the election result, subsequent policy decisions, Federal Reserve actions and economic conditions.
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