The Zhitong Finance App learned that as the US midterm election campaign enters its final month of intense phase, government spending in the fields of artificial intelligence (AI) regulation, healthcare, and defense is becoming the core focus of attention for stock investors.
Polls show that the Democratic Party is the favorite to gain control of the House of Representatives, and also has an advantage in key Senate elections. Taking over at least one house in the National Assembly will enable the Democratic Party to control a committee that can propose legislation and initiate investigations.
Concerns surrounding AI cross partisan lines, and voters are worried not only about potential risks, but also about unemployment and rising electricity prices. Some Wall Street strategists are pushing for a stricter regulatory layout for the Democratic Party, which may increase selling pressure on related sectors.
“The key to this midterm election is not that federal policy limits the immediate risk of data centers, but rather lays the foundation for relevant legislation that may be introduced in 2029,” Ariana Salvatore, head of US public policy research at Morgan Stanley, said in the report.
Despite this, history shows that no matter what happens, the midterm elections are unlikely to derail the stock market. According to Wells Fargo statistics, since 1946, the S&P 500 index has risen within 12 months after every midterm election. US President Trump's veto can counterbalance the Democratic Party; this kind of government impasse may instead create stability for investors. The Chicago Board Options Exchange Volatility Index did not release clear signals of election-related instability, making it less expensive to bet on increased price volatility.
Compared with the 2024 presidential election, “the impact of the upcoming midterm elections on the stock market under different election outcome scenarios is likely to be more subtle and more beneficial to stock selection,” J.P. Morgan strategist led by Dubravko Lakos-Bujas wrote in the report.
Therefore, with less than a month away from voting, Wall Street analysts believe the following sections are worth focusing on.
Technology and AI infrastructure
Over the next two years, Trump is likely to veto any legislation that is too bad for the tech industry. This may limit the fundamental risks of AI market benchmark Nvidia (NVDA.US) and big tech giants such as Alphabet (GOOGL.US), Meta Platforms (META.US), and Microsoft (MSFT.US).
Analysts at Morgan Stanley said that data center real estate investment trusts and new cloud vendors will face the impact of potential hashrate tax legislation proposals, while off-grid power providers such as Bloom Energy (BE.US), GE Vernova (GEV.US), and Cummins (CMI.US) may be boosted by stricter policies.
health care
Tobin Marcus, head of US policy and politics at Wolfe Research, said the hospital sector could benefit if the Democratic Party successfully reverses the Medicaid cuts included in last year's tax and expenditure bill.
He pointed out that if the Democratic Party seeks concessions in possible debt ceiling negotiations next year, it may seek policy results in the field of health care.
According to Jefferies analysts, hospital stocks such as Acadia Healthcare (ACHC.US), HCA Healthcare (HCA.US), and Tenet (THC.US) have short-term upside due to the election. Insurance companies Consigo (CNC.US) and Oscar Health (OSCR.US) may be buying because the market expects that the Democratic Party will negotiate to resume the enhanced Affordable Care Act subsidies that expired at the end of last year, but the agency believes that the probability of resuming these subsidies is low.
Defense sector
Defense contractors' stock prices have lagged behind this year due to market concerns that the Democratic Party may control Congress, leading to stricter regulations and delays in military funding. Melius Research said this set a “very broad” results range for fiscal year spending beginning October 1. Analyst Scott Mikus wrote in the report that if the legislative impasse means that the Department of Defense can only rely on temporary funding to maintain operations throughout the year, its budget will actually be reduced by 15%.
J.P. Morgan said that if the Republican Party holds both houses, military spending is expected to rise and become a favorable factor. The agency's analysts pointed out that L3Harris Technologies (LHX.US), Lockheed Martin (LMT.US), and Northrop Grumman (NOC.US) may be the beneficiaries.
Finance and cryptocurrencies
The Republican Party tends to implement looser regulation of the financial industry, which prompted J.P. Morgan analysts to predict that a big victory for the Republican Party could benefit banks such as Bank of America (BAC.US), Citigroup (C.US), and Wells Fargo (WFC.US).
However, independent agencies and the executive branch have a great deal of power over regulatory policies. Barclays analyst Jason Goldberg said in an interview that since the heads of the Federal Reserve, the Federal Deposit Insurance Company, and the Monetary Supervisory Service are likely to remain in office for the next few years, the election is unlikely to change matters such as bank stress tests.
On the cryptocurrency side, if the Democratic Party takes control of Congress, the chances of any legislation passing will likely drop. The Democratic Party and a minority of Republicans blocked the “Clarity Act” in September, causing stocks such as Coinbase Global (COIN.US) and Circle Internet Group (CRCL.US) to plummet.
Real estate sector
The steps proposed by Trump and housing official Bill Pulte to address housing affordability are few and rarely effective. According to September data, the median price of home sales rose 1.6% year over year to 429,100 US dollars. Coupled with soaring mortgage interest rates, this has put pressure on homebuilders and related sectors. The S&P 500 homebuilders index has fallen 25% since peaking in mid-February.
Isasc Boltansky, head of public policy at PennyMac, said that after the midterm elections, Congress may pay more attention to housing. Boltansky said that easing housing supply restrictions will become “a long-term agreement between the two parties, providing a clear policy starting point for the new National Assembly.”
Recently, Pulte once again criticized credit score related companies, suppressing the stock prices of companies such as Fair Isaac (FICO.US) and TransUnion (TRU.US). Mortgage finance giants Fannie Mae (FNMA.US) and Freddie Mac (FMCC.US) soared after Trump won the 2024 election, as markets are optimistic that the government will lift controls. Since then, as any potential action seems to have stalled, these two stocks have retreated somewhat.
Potential survey targets
Wall Street is also preparing for the Democratic Party to hold a hearing and launch a large-scale investigation. Evercore ISI told customers that investigations into AI may create market risks. The agency also anticipates that the National Assembly will investigate sectors related to people's livelihood that voters are paying close attention to, including energy, healthcare, food, and agriculture.
The strategist also suggested that companies that have received equity investment from the US government may face regulatory scrutiny, which will pose a risk to their brands and stock prices. There is a wide range of such targets, including chip manufacturer Intel (INTC.US), established technology company IBM (IBM.US), and rare earth producer MP Materials (MP.US).