US midterms: the impact of a blue wave will mainly be felt from 2029
The outcome of the US midterms on 3 November seems already decided: prediction markets give the Democrats around a 90% chance of winning the House of Representatives and a 60–70% chance of winning the Senate. Case closed.
Between a rock and a hard place
A change in control at the midterms is par for the course: since 1946, the president’s party has lost its House majority 7 out of 12 times. Voters are not simply embracing the Democrats; they are looking at their wallets. Petrol costs more than $4 a gallon; diesel more than $6. And over half of voters disapprove of both parties. For them, it is a choice between 2 evils.
Who will accept the result?
What happens afterwards promises to be more tense than the result itself. 6 out of 10 Americans think Trump will not accept a Democratic victory. The more decisive the outcome, the less there is to dispute. A narrow margin invites legal wrangling, and the timing could hardly be worse. Congress must approve the budget by 11 December - otherwise a shutdown looms. Trump and Chinese President Xi are due to meet on 18–19 November in Shenzhen and mid-December in Miami. A postponement would put pressure on the trade truce between the 2 countries, which expires on 10 January. One reassuring point: the stock market largely shrugged off the last prolonged shutdown, which lasted 43 days in autumn 2025.
No tax increases before 2029
Does a Democratic victory tell us anything about the 2028 presidential election? Since 1994, the party controlling the House after the midterms has also won the White House 6 out of 8 times. The highest government debt since World War II, a deficit of around 6% of GDP and rising interest costs make spending cuts and higher taxes inevitable. The corporate tax rate for the S&P 500 has nearly halved over the past 35 years, towards 20%, while the index’s net profit margin has tripled. That trend may be about to reverse.
Still, nobody needs to overhaul their portfolio tomorrow. As long as Trump is in the White House, until January 2029, there will be no tax increases: he has veto power, and overriding a veto requires a two-thirds majority in both chambers. Until then, the opposite is more likely. In the past, a divided Congress under a Republican president has often led to more spending. According to our colleagues in New York, the deficit could rise to 7–8% of GDP in 2027–2028 and push the US 10-year yield another 0.65 percentage points higher. The bill is therefore being pushed back to after 2028. And it will be hefty. Wall Street will probably only start pricing it in from early 2028, when the primaries get underway. Until then, strong corporate earnings will support the stock market.
Regulation: the pendulum swings
Until the 1990s, the US had stricter health, safety and environmental rules than Europe. Then the balance shifted. Now the pendulum may be swinging back. Almost 70% of Americans oppose Big Tech, and distrust of the pharmaceutical industry and data centres now crosses party lines. A comprehensive AI law or a national moratorium on data centres is unlikely before 2029, but sentiment towards the AI industry - the backbone of the current US economy - is souring. The pharmaceutical sector can also expect tough questions: Americans pay an average of 2.8 times as much for medicines as residents of other OECD countries.
Europe, on the other hand, is gradually — very slowly — moving in the opposite direction. It is allowing groups of member states to move forward at different speeds and wants to make doing business across the Union easier with a '28th regime', EU Inc. Could that spark greater interest in European equities? It is not inconceivable. Over time, the relative advantage of US equities could erode. Not a tsunami, but a gradual wave that is slowly gathering strength.
Tariffs: here to stay
European companies are also watching the impact on trade. On 20 February 2026, the Supreme Court ruled that the IEEPA emergency law provides no basis for broad import tariffs. The temporary replacement tariffs under Section 122 expired in July. They were replaced by Section 301 tariffs based on the allegation that trading partners are not doing enough to tackle forced labour — yes, really! Europe thus pays 10% on most of its exports and a maximum of 15% on cars and patented medicines. Steel and aluminium remain more heavily taxed.
Do not count on tariffs being scrapped. They raise revenue and limit the budget deficit. Abolishing them under a Democratic president in 2029 would imply a compensating domestic tax increase. That is no winning electoral formula, even though the middle classes bear the brunt of the current import tariffs through inflated prices.
2 years of choppy waters
Over the next 2 years, Washington will face underlying tensions and political gridlock: few new laws, plenty of executive orders, lawsuits and budget disputes. If the election result is accepted, this will not be a tsunami for markets, just somewhat choppier waters. The real wave comes later: if the outlook points towards a Democratic president in 2029, markets will price in tax increases and new rules during 2028.