What happened?

Democrats took both chambers of Congress and won governorships in states that usually vote Republican. The President responded that Republicans would have won in a landslide if he had been on the ballot. That is a curious line, given that he had earlier asked voters to treat the election as if he were.

As usual, the economy drove much of the vote. Cost of living helped carry Trump to victory in 2024, and two years later the same issue cut the other way, with tariffs and the conflict with Iran adding to price pressures. Some surveys also put concerns about democratic institutions about on a level with the economy as a voter priority.

The policy issues now in play…

A president with two years left, and a hostile Congress is a familiar setup in US politics. These are the issues it brings into focus:

Oversight. Controlling both chambers gives Democrats committee powers to investigate the Administration, and impeachment has been raised as a possibility. Senate control also shapes who gets confirmed to the Federal Reserve, which bears on how independent the central bank stays.
AI and data centres. Democrats won governorships in Texas, Ohio, Iowa and Georgia, all states with significant data centre investment. Much of the regulation that matters for data centres, such as planning, power and water, is set by the states. At the federal level, the President keeps his veto over new rules from Congress.
The debt ceiling and government funding. Current US government funding runs out on 11 December, and the debt ceiling will need lifting around the June quarter of 2027. Divided government has a long record of going to the wire on both. Gridlock can restrain the deficit, but trade-offs, such as more social spending in exchange for more defence spending, can widen it.
Foreign policy and trade. These are the areas where a president's executive powers are widest, so they matter more when Congress pushes back at home. The Iran conflict and tariffs both remain live. Some prominent Republicans, including Vice President Vance, have linked the war to the election loss, and there have been reports of renewed US–Iran talks. Meanwhile, White House chief of staff Susie Wiles has been replaced by Stephen Miller.
Taxes and the size of government. The result has raised questions about higher taxes and bigger government further out, particularly beyond the 2028 presidential election. Many of the seats Democrats gained were won by moderate candidates in Republican-leaning states. A proposed 5% wealth tax on billionaires in California was voted down, though partly because it applied to one state rather than nationally.

Markets: the reaction so far…

The first week:

Oil prices fell on hopes that a Democratic Congress would end the Iran conflict, and on reports of renewed talks. US bond yields followed oil down, helped by hopes that gridlock might mean a smaller deficit.

US shares had a bumpy ride. They rose 1.6% at first on lower oil, then fell 4.4% in a single day when fears of tighter rules on data centres hit AI-related stocks. They have since recovered to around where they were before the election. There's an irony here: before the vote, those same stocks were under pressure over whether Big Tech's huge AI spending would ever pay off. Rules that slow the data centre build-out could ease that particular worry.

Which party combination has been best for shares?

The original note included a chart of annual US share market returns (S&P 500, including dividends) under each mix of president and Congress. The figures below are approximate, read from that chart:

President and Congress 1970–2025

Democratic president, Democratic Congress 11% a year

Democratic president, divided government 19% a year

Republican president, Republican Congress 14% a year

Republican president, divided government 9% a year

The combination the US now has, a Republican president with Democrats controlling Congress, has the lowest average since 1970. Even so, every combination has averaged a positive return, and decades-long averages say little about any one year.

What happens after midterms?

Midterm years tend to be choppy. Falls within those years ranged from about 5% to nearly 40% (1974 was the worst). In 2026, the fall so far is about 9%.
The recovery has been consistent. In every midterm cycle since 1950, shares were higher 12 months after the low by about 10% to nearly 60%. The usual explanation is that markets dislike uncertainty, and an election result removes some of it.

The pattern is consistent, but it isn't a law of nature. This cycle has unusual features: AI-related stocks make up a large share of the US market, and the political backdrop is unusually unpredictable.

The factors in the mix…

Commonly cited risks include:

inflation that is high and slow to fall
further central bank rate rises
high public debt pushing up bond yields
the chance of another oil price spike
concerns about AI valuations and data centre spending
slower growth and higher rates in Australia

On the other side of the ledger are strong US corporate earnings, including outside tech, and few current signs of a US recession.

Other assets

Cryptocurrencies: closer Congressional scrutiny of the Trump family's ties to the sector could bring tougher regulation back onto the agenda. Some investors treat bitcoin as a hedge against inflation.
Gold and the Australian dollar: both have been driven more by oil prices and US Federal Reserve policy than by election outcomes.

What it means for Australia…

For Australia, the result matters less in itself than in how it flows through to oil, trade and interest rates.

Oil and inflation. Lower oil prices ease one source of inflation pressure, which the Reserve Bank weighs when setting rates. It's too early to say whether the lower prices will last.
Trade and foreign policy. Any renewed US push on tariffs or the Iran conflict would reach Australia through energy prices, global trade and market sentiment. A president's influence usually wanes as a term winds down, but the next two years still leave plenty of room for surprises.

Rick Maggi CFP, Financial Adviser (Perth), Westmount Financial

______________________________________________

Source and important information:

Adapted from Oliver's Insights, edition 32 by Dr Shane Oliver, Head of Investment Strategy and Chief Economist, AMP (10 November 2026). Chart descriptions are based on the charts in that note, sourced from Deutsche Bank, Bloomberg and AMP. Figures read from charts are approximate.

This commentary is general information only. It does not take into account your objectives, financial situation or needs, and it is not a recommendation, forecast or offer. Past performance is not a reliable indicator of future performance. Please speak with your financial adviser before making any investment decision.