JPMorgan sees only modest S&P 500 moves across four midterm scenarios

Because the projected ranges are tight, the likeliest result appears mostly reflected in prices already; a surprise, rather than the expected outcome, would therefore be the larger driver of equity moves. The more informative signal could come from bonds. JPMorgan ties Democratic control of the government’s finances to less deficit spending and lower long-end yields, whereas a Republican sweep would leave deficits high and yields elevated. On technology, the desk discounts the danger of AI regulation should Democrats control Congress, citing the presidential veto, though it warns of possible selling in the AI trade. In crude, a Republican sweep could give Trump more leeway to pursue the Iran campaign, directly tying the election to oil’s risk premium.

Whatever the midterm outcome, JPMorgan’s trading desk anticipates only limited movement in US equities; in its view, the likeliest result would trigger the smallest response, while the least likely would yield the largest advance.

Summary:

• The JPMorgan trading desk laid out four possible midterm results, drawing on Bloomberg prediction market odds dated November 1.
• Democratic House and Senate (66%): the S&P 500 is projected to move from -0.25% to +0.5%, while long-end yields dip slightly as deficit spending falls.
• Democratic House, Republican Senate (26%): equities are seen gaining 0.5% to 1%, as Democrats are expected to curb deficit spending by controlling government finances.
• Republican House and Senate (7%): stocks are seen up 1% to 1.25%, and long-end yields rise as deficit spending stays elevated.
• Republican House, Democratic Senate (1%): equities are projected to add 0.25% to 0.75%, amid budget clashes and the possibility of shutdowns.
• The desk argued that worries about AI regulation are exaggerated, since Trump would not sign legislation restricting AI and Democrats do not have a veto-proof majority.

According to JPMorgan’s trading desk, US equities will react only mildly to Tuesday’s midterm elections. Its view is that the likeliest scenario would bring the smallest move and the least likely scenario the largest increase.

Using a scenario map built on Bloomberg prediction market odds as of November 1, the bank’s market intelligence team put a 66% chance on Democrats taking both the House and Senate. Under that outcome, it expects the S&P 500 to range from a 0.25% drop to a 0.5% increase, and long-end Treasury yields to slip as deficit spending declines.

Investors might worry about a sell-off in AI shares because of regulation concerns under a Democratic Congress, the desk said, though it maintained that Trump would not sign legislation restricting AI and that Democrats would not have a veto-proof majority. It called any pullback a possible buying chance for AI bulls but also warned that investors could reduce exposure to the AI theme. The desk additionally pointed to possible congressional investigations involving donors linked to Trump, including big technology companies.

A divided Congress — Democrats winning the House and Republicans keeping the Senate — was assigned 26% odds. In that case, JPMorgan expects stocks to rise 0.5% to 1%, with Democratic control of government finances likely to cut deficit spending and perhaps push long-end yields lower. The desk said such an arrangement would in effect eliminate impeachment risk, while legislative gridlock would produce budget battles in 2027 that have usually had only a limited effect on the economy.

At 7% odds, a Republican sweep would produce the largest advance, with the S&P 500 projected to climb 1% to 1.25%. According to the desk, the status quo would create no fresh regulatory risks but would leave deficit spending high, pushing long-end yields upward. It added that this result might encourage Trump to press on with the Iran campaign until a deal favorable to the US or an Iranian capitulation.

The least probable result — a Republican House and a Democratic Senate, at 1% — is expected to lift stocks 0.25% to 0.75%, accompanied by budget fights and possible shutdowns.

Those limited ranges imply that markets have mostly absorbed the expected result, which would leave an unexpected outcome as the larger potential catalyst.