US midterms: fiscal agenda hangs on slim congressional majorities

The primary uncertainty for financial markets revolves around whether Washington's fiscal trajectory will continue or stall. Should Republicans retain control of both chambers, further tax reductions and higher defense expenditure would stay on the table, impacting the deficit outlook, Treasury issuance, and defense-related equities. Conversely, if Democrats win control of either chamber, that agenda would likely face legislative gridlock, with a pivot toward cost-of-living initiatives covering healthcare, housing, and energy, along with a greater volume of congressional probes, heightening headline risk. Potential legal contests over the administration of the vote could also prolong uncertainty past election night, posing a risk of volatility for stocks and the US dollar if the outcome is disputed.

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• US election: The key races that could tip control of Congress

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The outcome of Tuesday's US midterms will determine control of Congress, hinging on a few seats, and will dictate whether the existing fiscal agenda continues or encounters a split Washington.

Summary:

• Republi cans currently have a 218-214 edge in the House and a 53-47 advantage in the Senate; Democrats would require four net additional seats in each chamber to flip control.
• As of Monday, over 57 million early votes had been cast, significantly more than the roughly 46 million recorded in the 2022 midterms.
• Total campaign expenditure by candidates and outside groups is approximated at $12 billion, which would set a record as the costliest election in US history.
• President Donald Trump's approval rating stands at roughly 32% according to Reuters/Ipsos polling, with Republi cans still holding a spending edge in the campaign.
• Governor races feature in 36 states, and state legislative contests occur in nearly every state.
• If Republi cans hold Congress, tax cuts and defense spending hikes stay on the table; a Democratic House win would prioritize cost-of-living measures and oversight probes.

On Tuesday, November 3, US voters go to the polls with slim Republi can majorities in both congressional chambers on the line. The result will determine the fiscal and regulatory environment for markets up to the 2028 presidential vote.

In the House, Republi cans possess a 218-214 majority, along with two vacancies and an independent who caucuses with them. Democrats must achieve a net increase of four seats to seize control. In the Senate, the Republi can edge is 53-47, and Democrats likewise require four net seats to flip it; roughly twelve races, including those in Kansas and Texas, are considered pivotal.

High turnout and expenditure suggest a contest of exceptional stakes. By Monday, over 57 million individuals had cast early ballots, per the University of Florida Election Lab, versus about 46 million in the 2022 midterms. The nonpartisan organization OpenSecrets calculates candidate and outside group spending at roughly $12 billion, setting a record for a US election.

Multiple influences pull in different directions. President Donald Trump's approval rating, according to Reuters/Ipsos, is around 32%, close to a record low; rising consumer prices likely act as a headwind in many contests. Early ballot data point to heightened Democratic enthusiasm, and there are indications that some Latino voters who supported Trump in 2024 may be shifting back to Democrats. However, Republi cans maintain a spending advantage and may gain from voter unease about Democrats and concerns about some left-wing primary candidates.

Historical patterns illustrate the potential for large power shifts in midterm elections. Under President Barack Obama, Republi cans won 63 additional House seats in 2010; during Trump's first term, Democrats captured a net 40 House seats in 2018.

The implications for markets are evident. If Republi cans retain control, the speaker's gavel stays with Mike Johnson (or another Republi can), with emphasis on additional tax cuts, substantial defense spending boosts, and further cuts to social safety nets, building upon the 2025 tax and spending legislation. A Democratic House under Hakeem Jeffries would focus on reducing healthcare, housing, energy, and grocery expenses, as well as probes into the Trump administration.

Market participants will also monitor for legal contestations regarding the conduct of the election. State election authorities and House Democrats have been readying for possible disputes, which could prolong uncertainty past election night.

The conflict did not benefit him among voters.