Analyst explains why the midterm outcome is a “fundamental non-event”

Investing.com -- Citi has told investors in a note Wednesday that November's U.S. midterm elections are likely to be a "fundamental non-event" for S&P 500 fundamentals, whatever the outcome.

The bank said polling and prediction markets point to a House flip, with the Senate a toss-up, and that it would not be surprised by a Democratic sweep.

But it does not expect a meaningful impact on index fundamentals over the intermediate term, with any sector effects more likely, particularly under a sweep.

Citi noted President Trump's net approval is running below his first-term pace, and behind Obama in 2014 and Bush in 2006, both of which saw chambers flip, with the weakest readings on inflation, the economy and foreign policy. Record diesel prices and low approval on the Iran conflict add to the picture.

At the sector level, the bank said semiconductors tend to prefer GOP control given AI legislation risk, though it sees slim odds of laws derailing the AI trade given Trump's veto. Consumer discretionary has been the weakest sector this term amid tariff and gasoline headwinds.

A Democratic sweep could begin to price in 2028 policy risk, mainly higher corporate taxes and AI guardrails, Citi said, though it cautioned the outcome is not entirely negative as curbing tariff and war powers could prove market-positive.

It added that the 2018-19 experience showed "midterms were a relative sideshow versus the Fed."

You May Also Be Interested In

• Financial sector stocks fall as traders rotate into tech
• Don’t expect a grand bargain from the Trump-Xi summit: Yardeni
• Capri stock surges on potential buyer interest report