NEW YORK — With the U.S. midterm elections less than a month away, JPMorgan is telling investors not to make one giant political bet. Instead, the bank sees three very different market outcomes depending on who controls Congress—and some of the biggest winners could come from healthcare, defense, artificial intelligence, energy and infrastructure.
The central message from JPMorgan strategist Dubravko Lakos-Bujas is that the 2026 midterms are more likely to reshuffle sector leadership than trigger one simple marketwide move.
That is because the election could produce three broad outcomes:
a divided Congress;
a Democratic sweep;
or continued Republican control of both chambers.
Each would create a very different policy environment.
But JPMorgan’s most striking conclusion is this:
Wall Street may actually prefer Washington to remain politically divided.
Gridlock has historically been good for stocks
JPMorgan says congressional gridlock has been associated with some of the strongest post-election equity performance.
Since 1950, the S&P 500 has averaged roughly 21% gains over the two-year congressional term following a gridlock outcome, compared with about 18% when one party controls Congress.
The reason is straightforward.
Gridlock reduces the odds of sudden tax changes, major spending reversals or sweeping new regulation.
Businesses generally prefer predictability.
Investors do too.
That means a Democratic House paired with a Republican Senate—or any similar split—could limit large policy surprises while leaving major bipartisan priorities intact.
Healthcare could be one of the biggest gridlock winners
JPMorgan sees healthcare as one of the more attractive areas under divided government.
The logic is that major changes to Medicaid, drug pricing or reimbursement become harder to pass when neither party controls the full legislative process.
That reduces policy uncertainty for hospitals, insurers and pharmaceutical companies.
Among the names highlighted in JPMorgan’s gridlock basket are:
Gilead Sciences, Sherwin-Williams, Orion Group, MGM Resorts, CoreWeave, Oracle, SpaceX and Meta Platforms.
Not all of those companies are pure political trades.
Some are included because the bank believes broader themes—AI spending, defense, infrastructure and healthcare resilience—would continue even if Washington becomes legislatively frozen.
Defense spending may be hard to cut regardless of who wins
Defense is another area JPMorgan believes could remain resilient under divided government.
Military spending tends to attract more bipartisan support than many domestic programs, particularly during periods of heightened geopolitical tension.
The United States is simultaneously dealing with:
the war in Ukraine;
Middle East instability;
competition with China;
and expanding investment in missile defense, drones and space systems.
That means large defense contractors may retain political support even if Congress changes hands.
A divided government could therefore reduce the risk of sweeping budget cuts while still preserving defense modernization.
AI could also benefit from political deadlock
Technology is another interesting case.
JPMorgan argues some major tech and AI names could benefit under divided government because stricter federal regulation becomes harder to enact.
That could matter for companies investing heavily in:
data centers;
semiconductors;
cloud infrastructure;
AI models;
and power generation for computing campuses.
The bank expects artificial-intelligence capital spending to remain strong through 2027 and 2028, regardless of the election result.
That is one reason the AI trade may be more durable than the election itself.
Even a shift in congressional control may not significantly derail the hundreds of billions of dollars already being committed to chips, servers, networking equipment and electricity infrastructure.
The market is already heavily dependent on AI
That matters because U.S. stocks are already being carried disproportionately by megacap technology companies.
The Nasdaq hit another record on October 5, helped by gains in Nvidia, Microsoft, Meta and other large technology stocks.
Nvidia alone reached a market value of roughly $5.76 trillion.
At the same time, market breadth remains uneven.
Barron’s noted that the market-cap-weighted S&P 500 has significantly outperformed the equal-weighted index in recent months, showing how much of the rally depends on the largest companies.
That means any political outcome affecting AI infrastructure, data-center permitting or regulation could have an outsized impact on the indexes.
A Democratic sweep would create a very different trade
If Democrats win both the House and Senate, JPMorgan expects the strongest opportunities to move toward healthcare, renewable energy, environmental services and selected consumer-facing companies.
The bank’s Democratic-sweep basket includes names such as:
Centene;
Molina Healthcare;
NextEra Energy;
Salesforce;
Valmont Industries;
Baker Hughes;
Western Union;
and Flutter Entertainment.
Healthcare is especially important.
JPMorgan believes Democratic control could increase the probability of reversing or softening Medicaid funding cuts enacted under the Trump administration.
That could benefit hospitals and managed-care companies with large Medicaid exposure.
Clean energy could get another policy boost
A Democratic-controlled Congress could also create a friendlier environment for renewable power and environmental spending.
Companies involved in:
solar;
wind;
grid modernization;
environmental services;
and regulated utilities
could benefit if lawmakers restore incentives or increase agency funding.
JPMorgan specifically highlighted NextEra Energy in that scenario.
That would mark a reversal from the deregulatory energy policies favored under Republican control.
But investors should be careful about assuming a Democratic victory automatically produces sweeping climate legislation.
Trump would still occupy the White House.
Any major bill would therefore face the presidential veto.
That is why a “Blue Wave” would still be constrained
This is an important distinction.
Even if Democrats win both chambers of Congress, they would not control the presidency.
That means they could:
hold hearings;
block legislation;
control committees;
shape spending bills;
and intensify investigations.
But passing major new laws over Trump’s objections would remain extremely difficult.
The result would probably be a more confrontational Washington rather than a complete reversal of Trump-era policies.
Barron’s notes that sectors including pharmaceuticals, financial services, cryptocurrencies and big technology could face significantly greater congressional scrutiny if Democrats take control.
So a Democratic sweep could help some companies while creating headline risk for others.
Corporate investigations could surge
If Democrats regain the House, congressional oversight is expected to expand sharply.
Companies potentially facing scrutiny include:
AI firms;
cloud-computing companies;
health insurers;
large retailers;
government contractors;
oil producers;
and companies tied to Trump administration initiatives.
Congressional investigations do not automatically produce fines or legal liability.
But hearings can create reputational pressure, affect investor sentiment and force executives to disclose information publicly.
For highly valued companies, even small regulatory surprises can trigger significant stock volatility.
A Republican sweep could be the most bullish scenario for AI
JPMorgan’s third scenario is what it calls a “Red Wall”—Republicans retaining control of both chambers.
The bank sees this as potentially the most supportive policy environment for:
AI infrastructure;
data centers;
traditional energy;
nuclear power;
financials;
defense;
cybersecurity;
and domestic manufacturing.
The theory is that continued Republican control would preserve:
deregulation;
faster federal permitting;
fiscal stimulus;
energy development;
and fewer restrictions on AI buildout.
That could be especially helpful for companies supplying electricity and infrastructure to data centers.
JPMorgan’s Republican basket includes defense, banks and power
Stocks highlighted for continued Republican control include:
Devon Energy;
Lockheed Martin;
L3Harris Technologies;
Bloom Energy;
Veeva Systems;
Bank of America;
and CoreWeave.
The common themes are easy to see.
Energy.
Defense.
Finance.
AI infrastructure.
And deregulated capital investment.
A Republican Congress would likely continue prioritizing domestic energy production and defense spending while resisting tighter oversight of AI.
Nuclear power could be a hidden winner
One of the less obvious potential beneficiaries is nuclear energy.
AI data centers require enormous amounts of reliable electricity.
That has revived interest in nuclear power because it can provide continuous low-carbon generation without the intermittency of wind and solar.
A Republican-controlled Congress could accelerate permitting and financing for nuclear projects while also supporting gas-fired generation.
That matters because electricity availability is becoming one of the biggest constraints on further AI expansion.
The next AI bottleneck may not be chips.
It may be power.
Energy would also benefit from looser regulation
Traditional oil and gas producers would likely prefer continued Republican control.
The Trump administration has generally favored:
faster drilling approvals;
pipeline development;
lower environmental restrictions;
and domestic fossil-fuel production.
That could support companies such as Devon Energy and other exploration and production firms.
But oil stocks would still depend heavily on commodity prices.
Political support cannot prevent energy shares from falling if crude prices collapse.
That is why election-driven stock ideas should never be treated as purely political trades.
Fundamentals still matter.
Financial stocks could gain under continued GOP control
Banks and capital-markets firms could also benefit from lighter regulation.
Republicans have generally pushed for less restrictive financial rules, easier capital requirements and reduced compliance burdens.
That could support profitability at large banks and investment firms.
JPMorgan’s scenario analysis therefore includes financial companies as potential beneficiaries of continued GOP control.
But higher interest rates create a more complicated picture.
Banks can earn more on loans when rates rise.
They can also suffer from:
higher credit losses;
weaker borrowing demand;
falling bond values;
and stress in commercial real estate.
Political deregulation would only be one part of the equation.
A Republican sweep could also unleash more fiscal spending
The Financial Times notes that unified Republican control could open the door to another large reconciliation bill potentially exceeding $1 trillion, including Trump’s proposed $5,000 payments to adults.
That could boost economic growth in the short term.
But it could also increase:
the federal deficit;
inflation;
Treasury issuance;
and bond yields.
That creates an unusual trade-off.
Stocks might initially benefit from stimulus.
But higher bond yields could eventually hurt expensive growth stocks.
So even the supposedly most bullish political outcome comes with risk.
JPMorgan thinks stock picking matters more than the index
This may be the most useful part of the bank’s analysis.
JPMorgan is not telling investors that one party winning automatically means the S&P 500 rises or falls.
Instead, it expects much larger differences inside the market.
Healthcare could rally while defense falls.
Renewables could surge while oil underperforms.
AI infrastructure could outperform while regulated sectors struggle.
That means the 2026 midterms may be more important for sector allocation than for predicting the overall direction of the stock market.
The S&P 500 has already climbed about 60% this cycle
Another reason JPMorgan is cautious about using history blindly is that the market has already delivered unusually large gains.
The S&P 500 has risen roughly 60% since the beginning of the current presidential cycle, according to JPMorgan’s analysis.
That means the usual post-midterm rally may have less room to run.
Historically, volatility tends to rise before midterm elections and then decline afterward.
But history does not guarantee the same outcome in 2026.
Valuations are higher.
Treasury yields are elevated.
AI concentration is extreme.
Oil remains expensive.
And fiscal deficits are already large.
The starting point matters.
Wall Street is also unusually exposed to a sudden shock
Systematic investment funds are already carrying near-record stock exposure.
Deutsche Bank estimates volatility-control funds are positioned around the 98th percentile of historical equity exposure.
If volatility rises sharply, those funds could be forced to sell more than $100 billion in equities, amplifying a decline.
Midterm elections do not automatically create that kind of volatility.
But a surprise result could.
That means the election could matter as much through investor positioning as through actual legislation.
The market is already pricing in some Democratic gains
Prediction markets and recent polling increasingly favor Democrats taking the House.
Barron’s reported prediction-market probabilities of roughly 92% for Democrats to win the House and around 65% for them to capture the Senate at the time of publication.
The Washington Post similarly reported improving Democratic prospects, including expansion into congressional districts that were previously considered reliably Republican.
Those odds can change quickly.
They should not be treated as election forecasts with guaranteed accuracy.
But they matter because markets often move before Election Day.
If investors already expect a Democratic House, that outcome may produce less of a market reaction than a surprise Republican hold.
The real market surprise may come from the Senate
The House has increasingly been viewed as leaning Democratic.
The Senate remains more uncertain.
That is why some strategists believe the Senate result could ultimately matter more for markets.
A Democratic House with a Republican Senate creates classic gridlock.
A Democratic sweep creates greater oversight and healthcare-policy changes.
A Republican hold preserves Trump’s legislative flexibility.
The Senate therefore determines which of JPMorgan’s three market scenarios becomes reality.
AI may be the winner no matter who controls Washington
One theme appears surprisingly durable across almost every scenario.
Artificial intelligence.
JPMorgan expects AI capital expenditure to remain strong through 2027 and 2028 regardless of the election result.
The reason is that the spending is no longer driven solely by Washington policy.
Amazon.
Microsoft.
Meta.
Alphabet.
Oracle.
CoreWeave.
OpenAI partners.
Data-center developers.
Utilities.
Semiconductor companies.
All have already committed enormous amounts of private capital.
Congress can influence permitting, regulation and subsidies.
But stopping the entire investment cycle would be extremely difficult.
That is why election trades can be dangerous
Political trades look easy in retrospect.
An investor hears that Republicans favor oil and buys oil stocks.
Or assumes Democrats favor clean energy and buys solar companies.
Reality is much messier.
A company’s earnings can overwhelm political effects.
Interest rates can change.
Oil prices can collapse.
A recession can hit.
An AI stock can disappoint.
Regulation may never pass.
And markets may already have priced in the most obvious outcome.
JPMorgan itself emphasizes that the midterms create stock-specific opportunities rather than simple party-based bets.
Gridlock may be the outcome Wall Street understands best
Washington gridlock often sounds dysfunctional politically.
Markets can see it differently.
When neither party can radically change taxes, regulation or spending, businesses gain greater visibility.
Investors can focus more on earnings and less on legislative shocks.
That is why JPMorgan’s historical data show stronger average equity returns following divided-government outcomes.
But this election comes with unusual complications:
Trump remains unusually willing to use executive authority;
AI infrastructure is becoming a national political issue;
energy markets remain unstable;
and control of Congress could trigger aggressive investigations even without major new laws.
Gridlock may therefore be less quiet than it was in previous cycles.
The midterms could reshuffle the winners without breaking the bull market
The broader market remains strong.
The Nasdaq hit another record on October 5.
The S&P 500 is close to its own high.
AI spending remains enormous.
And investors have become increasingly optimistic that the Federal Reserve will avoid another immediate rate hike after weak employment data.
That means JPMorgan is not forecasting an election-driven market collapse.
Instead, it is preparing for a rotation.
Healthcare.
Defense.
Energy.
Renewables.
Financials.
Infrastructure.
AI.
Different sectors could take the lead depending on who wins.
And that may ultimately be the most important takeaway.
The 2026 midterm election may not decide whether Wall Street rises or falls.
It may decide which stocks get the next leg of the rally.
And if JPMorgan’s historical analysis is right, the outcome politicians hate most—gridlock—could once again be the one investors like best.
