Blue Wave – Reflection on the Midterm Elections 2026

Published: November 2026

On reflection, a different blue was hoped for

Donald Trump recently unveiled his newly refurbished Lincoln Memorial Reflecting Pool in Washington, proudly finished in what he described as “American flag blue”.

Unfortunately for the President, a rather different shade of blue has swept across America this week.

The Democrats’ success in the US midterm elections has handed them control of both the House of Representatives and the Senate when the new Congress takes office in January 2027, potentially making life rather more difficult for the President over the remaining two years of his term.

But what does this mean for investors?

Markets initially welcomed the election result, with Wall Street staging a strong rally on Wednesday. However, the optimism proved short-lived. Thursday saw another sharp reversal in the US, particularly among technology companies, as investors became increasingly concerned that greater Democratic influence could bring tougher regulation and restrictions on the rapid expansion of AI data centres.

Beyond the immediate market reaction, this is something we’ve been watching closely for some time. In our view, investors are becoming more selective, questioning whether the enormous sums being spent on AI will eventually deliver the profits needed to justify today’s valuations. The prospect of tighter regulation has added another layer of uncertainty. Not everything associated with AI is necessarily a good investment, particularly at the wrong price.

Meanwhile, the election result could bring greater scrutiny of government spending, regulation and economic policy. Some investors may welcome a little more restraint in Washington, although political gridlock brings its own problems.

US government bonds also strengthened as investors reconsidered the outlook for inflation, interest rates and borrowing.

So, where does this leave us?

We’ve spent much of the past year taking profits from some of the stronger-performing areas of equity markets, reducing our exposure to momentum-driven investments and adding greater diversification across our portfolios.

Recent performance has demonstrated the benefits of this approach. While some US and global equity investments have struggled, holdings in the UK, Europe and infrastructure have helped provide a welcome balance, although there is no guarantee that gains in one area will offset losses elsewhere.

Of course, diversification doesn’t mean everything goes up, or that we can avoid periods of volatility. It simply means we’re not relying on one particular market, sector or political outcome to deliver returns.

We don’t pretend to know what happens next in Washington, or indeed in financial markets. But we can position portfolios to cope with a range of outcomes, while remaining flexible enough to take advantage of opportunities as they arise.

After all, predicting the colour of the next political wave is difficult enough. Investing shouldn’t depend on getting it right.

We are always here to help with any questions or concerns you may have.  If you would like to speak to one of our Chartered Financial Planners, please contact us on 01223 233331 or email info@mmwealth.co.uk.

Disclaimer

Opinions constitute our judgement as of this date and are subject to change without warning.  The value of investments and the income from them can go down as well as up, and you may not recover the amount of your original investment.  Past performance is not a reliable indicator of future performance.

The information in this article is not intended as an offer or solicitation to buy or sell securities or any other investment, nor does it constitute a personal recommendation.

The information contained within this blog is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing.  Levels, bases and reliefs from taxation may be subject to change.