US Midterms 2026: The markets and your portfolio...
Americans vote today, and results will roll in across Wednesday. Our view in one line: the midterms will change the mood in Washington far more than they change the fundamentals of your portfolio.
That isn't a shrug. The US is roughly two-thirds of the world's sharemarket value, so what happens in Congress echoes through Australian super funds whether we like it or not. But history, and the current backdrop, both say the bigger drivers of returns over the next year are oil prices, inflation, interest rates and company earnings. The election is the noisiest item on that list, not the most important one.
What's actually on the ballot...
President Trump isn't up for election, but his ability to legislate is. All 435 House seats and 35 of the 100 Senate seats are being contested, with Republicans currently holding both chambers by slim margins. Democrats need a net gain of about three House seats and four Senate seats to take control, because a 50–50 Senate is decided by the Republican Vice President.
Going into polling day, forecasters and betting markets broadly agree on the House: Democrats are clear favourites, priced at close to 90% on the major prediction markets. The Senate is the genuine contest. Most models have it leaning Democratic in the final weeks, but it hinges on a handful of close races in states such as Maine, Michigan, Ohio, Iowa, Texas and Alaska.
Two cautions worth noting. First, polls have missed before, in both directions. Second, close Senate races can take days to call, so markets may have to sit with uncertainty a little longer than the evening news suggests.
What history tells us...
Markets dislike uncertainty more than they dislike any particular party. That's why midterm years tend to be sluggish in the run-up, and why the months afterwards have historically been some of the strongest in the four-year cycle.
Which party wins, historically speaking, has mattered little. The post-election rally tends to hold up whether Congress ended up divided or one party lost its grip, with the gap between those outcomes much smaller than the gap between staying invested and not.
The bigger forces at play...
If you want to know what will move markets over the next six to twelve months, look past the ballot box to three things already in motion.
Oil and the Iran conflict. Brent crude went from about US$71 a barrel before the war began in late February to around US$130 in early October. Energy prices now drive the inflation story on both sides of the Pacific, and no election result switches that off.
Inflation and interest rates. The US Federal Reserve raised rates in September and held them at 3.75–4.00% on 28 October, with two policymakers voting for another rise. Markets are pricing a possible further increase in December. At home, the RBA has lifted the cash rate five times this year to 4.85%. For Australian borrowers and savers, this morning's announcement matters more than anything Washington does this week.
The Australian dollar. The dollar has been hovering around US70 cents. For investors holding unhedged international shares, including through most super funds, the currency acts as a shock absorber: the Aussie tends to fall when global markets wobble, which cushions the value of overseas assets in Australian-dollar terms.
China and commodities. For a resource economy like ours, and Western Australia in particular, the more relevant question is whether US trade policy toughens or softens toward China. As noted above, that sits largely with the White House, not Congress.
What this means for you...
Our advice is the same as it would be on any other Tuesday: don't let the news cycle make your investment decisions. Some practical points:
Expect some noise this week. Election nights produce dramatic headlines and the occasional sharp day on markets. A volatile Wednesday is not a reason to change a long-term strategy.
Don't try to trade the result. History shows investors who move in and out of markets around elections usually miss the recovery that follows.
Keep cash needs separate. If you are drawing an income in retirement, your near-term spending should already sit in cash and defensive assets, so you are never forced to sell shares on a bad day.
Watch the things that matter. Interest rates, inflation and energy prices will shape your mortgage, your term deposits and your super balance far more than who chairs a congressional committee.
If the results, or the market's reaction to them, leave you uneasy, speak to your financial advisor - a conversation is always cheaper than a hasty decision.
Rick Maggi, Financial Advisor Perth, Westmount Financial
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Disclaimer
This article has been carefully prepared by Westmount Securities Pty Ltd (ABN 42 090 595 289, AFSL 225715) for general information purposes only. However, neither Westmount Securities Pty Ltd nor any of its affiliates guarantee the accuracy or completeness of any statements contained herein, including any forecasts. It is important to note that past performance is not a reliable indicator of future outcomes. This material does not consider the specific objectives, financial circumstances, or needs of any particular investor. Therefore, before making any investment decisions, investors should assess the relevance of this information to their individual situation and consult professional advice, taking into account their unique objectives, financial position, and needs.