The midterm election could change who holds leverage over companies that depend on Washington, especially in defense, healthcare, crypto and artificial intelligence. A Democratic win in either chamber of Congress could bring more investigations and more say over spending, but President Donald Trump would keep his veto.
Lockheed Martin gets about 70% of its sales from the U.S. government, and Medicaid accounts for three-quarters of Molina Healthcare's premium revenue. The midterm election could shift the balance of power over such companies. A Democratic victory in either or both chambers would give the party new leverage to investigate companies, challenge federal spending and demand legislative concessions.
Historically, stocks have done well under divided government. Under Republican presidents, the S&P 500 has gained an average of 23% in the year after midterms when Congress was split, compared with 16% when Democrats controlled both chambers, according to a Morgan Stanley analysis.
Oversight and spending fights hit healthcare and defense
Control of either the House or Senate would give Democrats committee gavels and subpoena power. Morgan Stanley's Monica Guerra, who expects Democrats to cast a wide net for their probes, said: "It creates volatility because you get a negative headline."
Healthcare faces a projected $911 billion cut in federal Medicaid spending through 2034 under Trump's 2025 tax cuts and spending law, according to a KFF analysis of Congressional Budget Office estimates. A Democratic-controlled chamber could not repeal the law on its own, but it could use must-pass budget negotiations to seek funding changes or delays to some cuts. The same lawmakers could also intensify scrutiny of insurers, hospitals and drugmakers.
For defense, the White House has requested $1.5 trillion for national defense in fiscal 2027. Lockheed Martin recently reached a framework agreement with the Pentagon covering 850 F-35 fighter jets over a decade, but Congress must still authorize the purchase and provide the funding.
Crypto and AI wait on rules
For crypto, the midterms could determine whether Trump's regulatory shift becomes durable law. The Senate failed to advance the Clarity Act in September, and shares of Coinbase and Circle fell as much as 11%. Democratic gains would give the party more leverage to demand stricter consumer safeguards and limits on yield-bearing stablecoins.
AI may be the messiest political trade of all. A CNBC survey found that 63% of registered voters oppose having a data center within 10 miles of their home, compared with 13% who support one. Democratic gains could put more grid-upgrade costs on tech developers, though state regulators, utilities and local governments will still decide which facilities get built.
Source: CNBC
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