Episode summary
U.S. Midterms: What Investors Should Watch
Thoughts on the Market (Morgan Stanley)
· · 7 min · Hosts: Ariana Salvatore, Michael Zezus
Summary
Morgan Stanley’s Michael Zezas and Ariana Salvatore argue that the 2026 U.S. midterms matter for markets, but less than many investors expect from a macro standpoint. Their core view is that trade, geopolitics, and deregulation are likely to continue regardless of who wins, so the election is more likely to change the form of policy than the overall direction.
Where the election could matter most is fiscal policy, especially around SNAP and Medicaid changes set to begin in 2027 and 2028 under the One Big Beautiful Bill Act. They say divided government could create openings to delay or soften those changes, but only if one party has a robust rather than fragile majority and can use must-pass bills like appropriations or debt ceiling extensions to negotiate.
They also see AI policy advancing regardless of the outcome, with the bigger question being pace and friction around permitting, power, data centers, and supply chains. That implies sector-specific effects: power and data center REITs could be exposed to infrastructure constraints, while consumer and healthcare names are more tied to the fiscal debate. They expect only modest growth differences across scenarios, though funding fights could still create volatility in rates and currencies.
Key takeaways
- Morgan Stanley says the midterms are likely to matter less for markets than investors think, at least from a macro perspective.
- The biggest election-sensitive policy area is fiscal policy, especially SNAP and Medicaid changes scheduled for 2027 and 2028.
- The analysts say divided government could delay or soften those fiscal changes, but only if the winning party has a robust majority.
- AI policy should keep moving regardless of the election outcome, but infrastructure, permitting, and energy constraints could slow execution.
- Power and data center REITs look more exposed to AI infrastructure bottlenecks, while consumer and healthcare sectors are more exposed to fiscal-policy changes.
Notable quotes
“our view is these elections probably matter a little bit less than people think, at least from a macro perspective”
“the direction of policy doesn't really change based on the midterms”
“things like SNAP and Medicaid, those are the real swing factors depending on the election outcome”
“the most likely way you can get meaningful adjustments is in some form of divided government”
“AI policy is likely to take shape regardless of the election outcome”
How the episode opens
Welcome to Thoughts on the Market. I'm Michael Zezas, Deputy Global Head of Research for Morgan Stanley. And I'm Ariana Salvatore, Head of Public Policy Research.
Today, we're discussing the midterm elections and their implications for US markets. It's Wednesday, April 22nd at 10:00 a.m. in New York.
All right. So, Ariana, midterm elections are coming up and I feel like every cycle we hear the same question, how much do elections actually matter for markets? Yeah, I would say, you know, we're still 6 months out and obviously a lot of the market's focus has been on the US-Iran conflict, but it does keep coming up in our conversations with investors.
And to your question, our view is these elections probably matter a little bit less than people think, at least from a macro perspective. Okay. So, that seems a bit counterintuitive, right?
Because policy has felt like a huge driver of markets recently. Tariffs, geopolitics, really all the above. Exactly, but there's some nuance here.
So, policy does matter, but the big takeaway is that the direction of policy doesn't really change based on the midterms. That's because some of the key policy variables that you mentioned, trade, geopolitics, also deregulation, those are all likely to keep going regardless of who wins. At the same time, it's worth noting up front that the race itself is still pretty fluid.
A lot of the indicators that investors are watching, polling, prediction markets, the president's approval rating, even things like domestic gasoline prices and consumer sentiment, they're somewhat giving mixed signals right now. There's a growing narrative around a potential Democratic sweep, but when you actually look in more detail at the Senate map, we think the path there is still pretty challenging. So, I think it's important to emphasize there's much more uncertainty in the outcome than the headlines right now might suggest.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- u.s. midterms
- healthcare policy
- consumer spending
- ai policy
- iran geopolitics
Watch the episode
Watch “U.S. Midterms: What Investors Should Watch” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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