Wall Street eyes divided Congress as most likely midterm outcome

The midterm elections are still weeks away, but Wall Street has already picked its preferred winner: nobody. Major financial institutions including Morgan Stanley, JPMorgan, and UBS are coalescing around the same base case for November 3: Democrats flip the House while Republicans hold the Senate. Prediction markets currently assign a 44% to 50% probability to Democrats regaining the House, while full Republican retention of both chambers sits at a comparatively slim 10% to 16%. The math behind the gridlock trade Republicans hold the House by a razor-thin margin, roughly 218 seats to Democrats’ 214. The Senate tells a different story. Republicans sit on a 53-47 majority, a buffer wide enough to survive the typical midterm headwinds. About 47% of fund managers surveyed by Bank of America expect exactly this scenario heading into the vote. Why markets love a Congress that can’t agree on lunch The S&P 500 has averaged roughly 5.7% returns in the three months following recent midterm elections. This dynamic sets up what strategists are calling a potential post-election relief rally, with capital flowing back into equities pushing prices higher into early 2027. The tail risk that ke...