Citi expects the November U.S. midterm elections to have limited implications for S&P 500 fundamentals over the intermediate term, although the bank said individual sectors could experience a greater impact depending on the composition of Congress.
The bank described the election as a potential “fundamental non-event” for the broader index across the outcomes considered in its analysis.
Citi cited polling and prediction-market pricing indicating greater prospects for a change in control of the House of Representatives, while describing the Senate as more uncertain. The bank also said a Democratic sweep would not surprise it.
These assessments represent Citi’s interpretation of polling and market-based indicators rather than a prediction of the election result. Polls and prediction-market prices can change before Election Day and do not determine the outcome.
Citi Examines Approval Ratings and Economic Issues
As part of its analysis, Citi compared President Donald Trump’s net approval ratings with points during his first presidential term and with the ratings of former presidents Barack Obama in 2014 and George W. Bush in 2006.
The bank said Trump’s net approval was running below those historical comparisons and identified inflation, the economy and foreign policy as areas with weaker approval readings.
Citi also cited diesel prices and public views of the Iran conflict as factors in the current political environment.
The historical comparisons do not establish how voters will behave in the 2026 midterms, as congressional outcomes are determined through individual state and district contests.
Sector Effects Could Be More Significant
Citi said the election could have more noticeable implications at the sector level than for the S&P 500 as a whole.
According to the bank, semiconductor stocks have shown a tendency to perform relatively better alongside expectations of Republican control, which Citi associated with potential artificial intelligence legislation. However, the bank considers the likelihood of legislation materially disrupting the AI investment theme to be limited under the political scenarios it examined.
Consumer discretionary has been the weakest-performing sector during the current presidential term, according to Citi, amid factors including tariffs and gasoline prices.
The bank said a Democratic sweep could cause investors to begin considering potential 2028 policy changes, including higher corporate taxes and additional AI-related regulation.
At the same time, Citi said such an outcome would not necessarily have uniformly negative market implications. The bank said potential constraints on executive tariff and war powers could be viewed positively by markets.
These are Citi’s assessments of possible policy and market implications rather than predictions about legislation or sector performance.
Citi Points to Fed as Larger Historical Market Factor
Citi also compared the current environment with the period surrounding the 2018 midterm elections and subsequent market developments.
The bank said the 2018-19 experience showed that “midterms were a relative sideshow versus the Fed.”
Citi’s analysis therefore suggests that monetary policy and other macroeconomic factors could have greater significance for S&P 500 fundamentals than the election outcome itself.
The assessment reflects the bank’s current market and policy analysis. The eventual composition of Congress, subsequent legislation, Federal Reserve policy and economic conditions could result in different market effects.