Ahead of Election Day, there was a growing consensus among political observers around a Democratic sweep of both the House and Senate. The actual result can be described as a decisive win for Democrats. When all the votes are counted, the balance of power should shift their direction by around 30 seats in the House and at least seven seats in the Senate—with both bodies now falling under their control. Democrats also performed well in state and local elections, and they will now occupy the governor’s office in nine out of the 10 largest states in the country.
These results continue a long-term trend in American politics of the party that holds the executive branch losing the midterm elections. This extreme political volatility, along with opposing parties leading the legislative and executive branches, makes it hard for any certainty in forecasting likely policy implementation. However, it’s important to note that early commentary from pundits is not portraying the result as an overwhelming victory for progressive Democrats, with a handful of progressive Senate candidates running a few points behind more centrist gubernatorial candidates in their states.
Aside from the elections of Abdul El-Sayed in Michigan and Troy Jackson in Maine, it was generally moderate Democratic candidates flipping Republican-held Senate seats. This may bode well for future dealmaking between Democrats and moderate Republicans in the next Congress. Compromise legislation will have a better chance of becoming law while the president holds the veto. Certain required events, like the budget and debt ceiling, may create leverage for Democrats to achieve policy wins that President Donald Trump signs into law.
Following the election, there may be growing pressure to end the war in Iran. In accepting the results, President Trump reiterated he has no immediate plans for a new strike on Iran and the administration may apply continued economic sanctions as opposed to kinetic pressure. Oil prices moved down steadily in trading immediately after the election results.
Artificial intelligence, particularly data centers, may be an area where the results impact the path forward. Texas saw Democrats take the governorship (where both candidates made data centers a campaign issue) and a majority in the state House. Some of the more speculative data center projects could be canceled, and AI capital spend may slow somewhat as a result. There is not full alignment among Democrats nationwide over opposition to this issue. Some states governed by Democrats, such as Virginia, have seen tangible economic benefits from centers already put in place. Under a Congress and state legislatures with more Democratic influence, there may be opportunities for compromise between environmental groups and data center developers that allow a level of continued construction to meet the voracious demand for compute capacity.
Over the past several years, certain Trump administration policies have differed from the traditional Republican party platform. This may create other areas of potential legislative compromise with a Democratic Congress. Both sides appear to prefer a global pricing methodology for drugs purchased in the Medicaid program. Both President Trump and Senator Elizabeth Warren, who is expected to chair the Banking Committee, have expressed support for a cap on credit card interest rates. With costs currently out of reach for many prospective new homeowners, a housing bill with subsidies and some tax credits is also a potential area for cooperation.
It will be some time before any broad pronouncements can be made about changing political tides based on this election. There is potential a Democratic-led Congress will spend the next two years running investigations of the president and his close allies. There’s also potential the election results convince Democratic leadership to push for tangible legislative accomplishments in an effort to maintain momentum heading into the 2028 cycle.
After a knee-jerk reaction to sell equities in the Asian and US futures markets in overnight trading after the election, equity investors appear to have gleaned the potential for compromise as we continue to experience above-trend economic growth. US and European equity markets were up roughly 2% by midmorning following election day.
Headwinds indeed exist as markets climb the proverbial wall of worry. Fiscal and monetary policy both are expected to be incrementally tighter in 2027 compared to this year. There is likely to be some slowdown in economic growth as the advance of AI may be forced to slow in response to changing political tides. Perhaps the Federal Reserve acknowledges slower prospective growth and refrains from any excessive tightening policies. There has been no buildup of excess goods inventory that needs to be worked down. Companies have remained lean in their cost structures, so labor markets should remain stable. We do not see a recession in the US on the horizon over the near term.
As the new Congress takes shape, the Cerity Partners Investment Committee will continue to monitor policy proposals and debates that may have tangible effects on the overall outlook and within sectors of the US economy.
If you have questions about how these views impact your personal situation, reach out to your Cerity Partners advisor or request an introduction today.
Cerity Partners does not take a position on political parties, candidates, or policy positions. Any discussion of political or policy developments is intended solely to consider their potential economic and market implications. References to political parties, elected officials, candidates, or legislation are for informational purposes only and are not an endorsement of, or opposition to, any party, candidate, or policy. The views expressed are as of the date of publication, are subject to change without notice, and do not necessarily reflect the political views of any individual employee or affiliate of Cerity Partners. Political outcomes and the resulting policy are inherently uncertain, and actual results may differ materially from those discussed. This material is not intended as political advice or as a recommendation to vote for or against any candidate or ballot measure.
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