U.S. midterm elections may be closer than expected

Expect a closer U.S. midterm election than many anticipate, with Democrats likely taking the House by a narrow margin. The Republican Party is expected to retain its Senate majority. This outcome stems from fewer competitive races due to gerrymandering and the Republican fundraising advantage.

The critical issue driving voter sentiment is the high cost of living. Americans are focused on cumulative price increases since 2021, not just current inflation rates. This affordability crisis is likely to be the deciding factor for many voters.

The most probable result is divided government, leading to legislative gridlock. While this can cause temporary market volatility around debt limit and budget debates, it historically has not harmed stock market returns. In fact, U.S. stocks have performed well following midterm elections, averaging a 15% return in the 12 months after. Investors should remain focused on long-term company fundamentals, as political noise has historically had little impact on overall market performance.