The Democratic Party’s win in Tuesday’s US midterm elections, giving the party control of both chambers of Congress, will complicate governing and obstruct Donald Trump’s economic agenda of corporate tax cuts and deregulation. The upcoming cohabitation will likely mean prolonged budget fights between lawmakers and the president over the next two years as Democrats will insist on safeguarding social programs, while the president will push corporate tax cuts.
In the past, that meant government closures and administrative headaches. Notably, Trump does not remain without instruments to impose his agenda, as he wields his veto power, but the path might become slower and more complicated as he will have to work with Democrats on passing his budgets and new legislation.
For the markets, the key issue is policy predictability during Trump’s final two years of its presidential mandate. With Democrats winning both chambers of Congress, the gridlock can support stocks by reducing the risk of sudden policy shifts, giving companies a more stable environment in which to plan and invest. However, this could push Trump towards executive orders, including some disruptive ones concerning tariffs and foreign policy decisions, and veto decisions, potentially offsetting the benefits of the legislative body’s change of power and a more balanced governance.
Romanian retail investors have been weighing how the US midterms could affect their portfolios. According to etoro’s latest Retail Investor Beat, 61% have changed their investments or plan to do so because of the election. Out of these, only 11% stated that they already acted at the date of the survey. Another 29% expect to act after the results, while 21% said that they will act before the vote, suggesting a greater preference for waiting until the outcome is clear. Only 27% said they would not change the composition of their portfolio due to the US Midterm elections.
The investors’ response goes beyond defensive positioning. Among those adjusting their portfolios, 33% are increasing their stock holdings and 23% are adding cryptoassets, while 18% are raising cash. The poll also shows that 25% of investors adjusted their portfolios by selling more stocks while 19% did the same thing with crypto. With 41% of Romanian investors holding foreign equities, including the ones on the US markets, shifts in Treasury yields, trade policy and the dollar could have a direct impact on their investments.
Volatility may rise in the short term during this period, expected to be followed by a relief rally as uncertainty of the US Midterm outcome fades. According to J.P. Morgan, the S&P 500 has gained around 15% on average in the 12 months after midterms since 1950, although trade tensions can continue to influence global markets while geopolitics may continue to play a significant role in the current energy crisis. Ultimately, oil prices, inflation, interest rates and earnings matter more than politics, possibly making diversification and a long-term perspective more important than election bets, for investors.
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