Race to the midterms has begun

Political risk is rising as President Trump’s lengthy, partisan State of the Union and Gov. Spanberger’s pointed rebuttal highlight deep divisions ahead of the midterms. Historically, the president’s party tends to lose House seats in these elections, and Trump’s weakening approval ratings with independents and Democrats increase the odds of a shift in congressional power. At stake are several populist policy proposals on health care, energy, housing, retirement savings, immigration and a potential congressional stock-trading ban that could reshape sector winners and losers.

Investors should also watch for possible July 4th fiscal measures tied to America’s 250th anniversary, which may influence growth and inflation into year-end. Markets typically experience a 5–10% pullback during midterm years due to policy uncertainty but have tended to bottom by the fourth quarter before advancing to new highs over the subsequent two years.