Episode summary
4 Market Signals Ahead of the Midterms
Thoughts on the Market (Morgan Stanley)
· · 5 min · Hosts: Ariana Salvatore
Summary
Ariana Salvatore says the 2026 midterms are unlikely to alter the core executive policy agenda. In her view, tariffs, trade policy, deregulation, immigration, and export controls are still mostly controlled by the White House, so even a shift in congressional control would not make those policy risks disappear. Congress matters more for fiscal policy, but she argues the range of outcomes is still fairly narrow, centered on the timing of SNAP and Medicaid cuts, defense spending, and future funding and debt-limit talks.
She also cautions investors not to read the midterms as a clean preview of the 2028 presidential election. Looking at six midterm-to-presidential cycles since 1994, she says the top issue changed in five of them, and the decisive presidential issue was visible at the midterm in only two cases. Instead, she sees the election as a way to identify emerging policy fault lines, including taxes, Social Security, healthcare, and restrictions on data center development.
On AI, Salvatore says the bigger midterm impact is likely to come through data center policy, not broad federal AI regulation. State and local levers such as permitting, siting, grid interconnection, and tax incentives may shape where AI capex goes, while comprehensive federal AI legislation looks unlikely absent a major incident. For markets, she expects more micro than macro effects, with sector implications for consumer, healthcare, AI-related stocks, rates, and the dollar.
Key takeaways
- Salvatore says midterms are unlikely to change the executive branch agenda, because key policy levers like tariffs, trade, deregulation, immigration, and export controls stay with the White House.
- She argues Congress matters most for fiscal policy, but the main differences are limited to SNAP and Medicaid timing, defense spending, and funding and debt-limit negotiations.
- Salvatore warns investors not to treat midterm outcomes as a direct read on 2028, noting that the top midterm issue changed in five of six cycles since 1994.
- She sees data center policy as the main AI-related election variable, with state and local authorities more important than Congress for buildout decisions.
- The market impact, in her view, is mostly sector-specific: consumer, healthcare, AI-related names, and rates could react more than the broad macro backdrop.
Notable quotes
“Tariffs, trade policy, deregulation, immigration, and export controls are all variables that are going to remain within the White House's authority”
“the issues that dominate a midterm don't necessarily translate to the next presidential race”
“We think it's important to separate those two issues”
“For markets, we see more micro implications than macro ones”
How the episode opens
Welcome to Thoughts on the Market. I'm Ariana Salvatore, head of US public policy research at Morgan Stanley. Today, I'll be talking about the upcoming 2026 midterm elections.
It's Wednesday, September 30th at 10:00 a.m. in New York. As the elections inch closer, investors are increasingly asking about potential ramifications.
We just put out a deep dive covering our expectations, and we arrive at four key takeaways. The first midterms are unlikely to change the core executive policy agenda. As we've been noting for some time, a lot of the policy uncertainty that markets have dealt with since the beginning of 2025 has actually come from the executive branch rather than Congress.
Tariffs, trade policy, deregulation, immigration, and export controls are all variables that are going to remain within the White House's authority. So even if control of Congress changes, we don't think investors should assume that those parts of the policy agenda simply go away. Where Congress actually matters more is on fiscal policy.
But even there, the range of outcomes is relatively narrow. The main differences revolve around the timing of scheduled SNAP and Medicaid cuts, defense spending, and how future government funding and debt limit negotiations evolve. So that's our first takeaway.
Midterms can change the mechanics of governing, but probably not the broader direction of the executive agenda. That means policy uncertainty, at least across those vectors I mentioned, is likely to stay high. Takeaway number two, we'd be careful about treating the midterms as a direct signal for the 2028 presidential election.
Historically, what we see is the issues that dominate a midterm don't necessarily translate to the next presidential race. Looking at the six midterm to presidential cycles since 1994, the top ranked issue changed in five of them. And the issue that ultimately proved decisive in the presidential election was actually already visible at the midterm in only two of the six cases.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- us midterms
- fiscal policy
- executive policy uncertainty
- congressional control
- 2028 election signals
Companies and tickers mentioned
- MS
- Morgan Stanley
Watch the episode
Watch “4 Market Signals Ahead of the Midterms” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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