Formal Gridlock Forms the Midterm Miracle’s Foundation

Editors’ Note: This post dives into politics, so we remind you MarketMinder Europe favours no politician nor any political party, weighing elections and developments solely for their potential market, economic or personal finance effects.

The results are in, the dust is settling, and markets have identified the real winner of Tuesday’s US midterm legislative elections: Political gridlock! The formal, party-line kind, as the Democrats take the House of Representatives and Senate. (We reckon the secondary winner is America, now free from nonstop political ads and spam texts for at least two days, before 2028 presidential primary campaigning starts.) The backdrop for stocks’ most consistently positive nine-month stretch is in place.

We aren’t referring to the S&P 500’s 1.6% jump in US dollars Wednesday, nice as it is.^[i] That may just be noisy relief at having political clarity, but we think daily swings defy clear explanations. No, we refer to US stocks’ history of strong returns in midterm year Q4s plus the next Q1 and Q2. This stretch hasn’t fallen once since the Great Depression.^[ii] Not. Once. And since good data start in 1926, the S&P 500 averages 19.8% in the full span.^[iii] This consistency implies it doesn’t matter who is president, which party the president is from or which party wins at midterms. We think the real X-factor is this: The president’s party almost always loses Congressional seats, creating gridlock that vaporises legislative risk. In this environment, we find businesses generally don’t have to worry about big legislation rocking the boat (and future profits) for two years. They can take risk, powering economic growth and returns. The data suggest to us stocks love it, even if voters hate it. This is the Midterm Miracle.

Yes, the US got that gridlock Tuesday night, pending some final tallies. Democrats won the House and Senate, capturing seats political analysts deemed toss-ups and then some. But their Senate edge (presently 54 – 44 with two seats still to be called) isn’t a 60-seat supermajority necessary to override a presidential veto.^[iv] Absent something wild, like a bipartisan tariff repeal (we can dream), we suspect about all you will see is sand in the gears. Standoffs over America’s statutory debt ceiling and government shutdowns look likely, followed by compromise that probably makes no one happy. Essential bills only, most likely, nothing radical or pie-in-the-sky. We think this is magical clarity for markets.

Of course, gridlock doesn’t mean nothing happens. Democrats will now hold Congressional committee chairs, meaning they will set the agenda, determine what gets debate time, and who gets hauled in for hearings. Perhaps they will spend their time investigating President Donald Trump or members of his administration, as some have discussed.^[v] That will probably get loud. But they lack the votes to impeach on party lines, likely limiting how far this can go. It also isn’t clear to us the Democrats want to repeat 2019’s efforts when Trump is a lame duck with just two years remaining in office.

Similarly, they can hold hearings on industry regulations. Already, commentators we follow warn Financials and artificial intelligence-related (AI) firms could be in committee leaders’ sights.^[vi] We saw several headlines Wednesday warning the Democrats’ win will derail the AI boom, and AI-related stocks sold off hard (again).^[vii] But here, too, we see only so much Congress can do on its own. They can hold hearings, but hearings don’t mean much unless they lead to legislation. We have a hard time seeing Congress cobbling AI regulation that Trump would sign, given his consistent pro-data centre stance.

Local election results perhaps mean more on this front. Several candidates who campaigned against data centres won, as did some ballot measures. But consider: Has anything fundamentally changed? Maybe local leaders will offer fewer tax breaks and subsidies for new data centre construction. But we have observed permitting gumming up the works for years. It seemingly gets more attention now, but we find the slowness isn’t new. Nor is the grassroots, not in my backyard (or NIMBY) opposition. It reminds us a lot of sentiment surrounding hydraulic fracturing as an oil drilling technique 15-plus years ago. That didn’t prevent the US’s shale oil and gas boom. Politicians compromised, and drillers innovated clever solutions to many of society’s gripes. The same could happen with data centres over time even if construction slows.

Regardless, the risk that planned data centre investments don’t pan out isn’t new. We have seen a steady drumbeat of headlines about it for months. Many analysts we follow scrutinise cloud services providers’ balance sheets, funding costs, permitting battles, cash flows and more, garnering widespread attention in financial news. Meanwhile, whilst sentiment toward Tech has seemingly simmered down a bit, we think it remains high. To us, it points to the sector probably underperforming broader markets. Whether midterms sway that sentiment is worth monitoring, but that isn’t assured today. At any rate, we don’t see the election crashing AI and taking the entire market down with it. Rather, we think it is likely to merely plods whilst other sectors lead. But our research finds every bull market has its leaders and laggards. In our opinion, Tech underperforming doesn’t make this one fragile or negate the Midterm Miracle.

Ultimately, with the vote behind us, we are likely to get a (brief!) reprieve from US politicking before all attention turns to 2028’s presidential election. It should also quell some fears we have seen lingering like zombies over the past two years. Democracy functioned and the election happened, assuaging some worries we have seen over the US political system’s vitality. Many commentators we follow have warned Trump could pack the Federal Reserve with puppets. Beyond the fact Chair Kevin Warsh hasn’t done his bidding, the Senate confirms candidates. The Democrats will control it come January—likely a sharp force muting that fear.

Politics are only one market driver. But with gridlock in place and economic drivers still looking bright to us, we think stocks should have ample room to run. Love, hate or yawn at Tuesday’s results, we think that is worth cheering.

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[i] Source: FactSet, as of 4/11/2026. S&P 500 total return on 4/11/2026. Presented in US dollars. Currency fluctuations between the dollar and pound may result in higher or lower investment returns.

[ii] Source: Finaeon, Inc., as of 28/9/2026. Presented in US dollars. Currency fluctuations between the dollar and pound may result in higher or lower investment returns.

[iii] Ibid.

[iv] Source: Associated Press, as of 4/11/2026.

[v] “Back in the Majority, Democrats Have Plans for Long List of Trump Investigations,” Eric McDaniel, NPR, 4/11/2026.

[vi] “‘AI Earthquake’: Democrats Eye a Silicon Valley Reckoning,” Katherine Long and Hohn Hendel, Politico, 4/11/2026.

[vii] Source: FactSet, as of 4/11/2026. Statement based on Nasdaq Composite and S&P 500 constituent returns on 4/11/2026. Presented in US dollars. Currency fluctuations between the dollar and pound may result in higher or lower investment returns.