The 2026 U.S. midterm elections are approaching with a high probability that Democrats will win control of at least the House of Representatives. Prediction markets currently price a Democratic House win at around 90% to 93%, while the Senate remains a toss-up with a slight Democratic edge . This creates a divided government scenario, which historically limits sweeping legislative changes but does not eliminate policy uncertainty.

Fiscal Policy
A divided Congress makes major new spending or tax legislation unlikely. However, meaningful fiscal consolidation is also improbable. The federal deficit is expected to remain near 6% of GDP, with a budget gap of roughly $2 trillion this year . Gridlock may slow new spending initiatives, but entitlement costs and interest payments will continue to drive borrowing needs . The bond market is increasingly skeptical that legislative paralysis alone will address the fiscal trajectory, as annual net interest costs have already surpassed $1 trillion .

Tariffs
Goldman Sachs does not expect Democrats to provide relief on tariffs for affected industries. In fact, the bank projects further upward pressure on tariffs until at least early 2027 . A Democratic Congress could push to reduce tariffs, but this would cut government revenue and potentially widen the deficit .

Crypto Regulation
The Digital Asset Market Clarity Act stalled in the Senate in September 2026 and is effectively blocked until the new Congress convenes in January 2027 . A Democratic sweep would likely delay market-structure legislation further, with stronger consumer-protection and DeFi disclosure provisions attached to any bill . However, analysts at 21Shares do not believe the midterms will fundamentally alter the digital-asset regulatory framework, as the SEC’s interpretive approach rests on existing statutory authority .

U.S. Stocks
Historical data shows the S&P 500 has generally risen after midterm elections since 1970, regardless of the winning party, with an average gain exceeding 13% in the 180 days following the vote . A divided government is often viewed as market-friendly because it reduces the likelihood of sweeping legislative changes to taxes and regulation . However, specific sectors face pressure: technology stocks may see initial weakness due to anticipated scrutiny of AI data centers and antitrust enforcement, while healthcare providers benefiting from ACA subsidies and renewable energy could outperform .

Gold
Gold faces mixed drivers. Smaller deficits could ease fiscal concerns and support the dollar, weighing on gold. Conversely, pressure to reduce tariffs could widen the deficit and support the metal . Political uncertainty surrounding the election could also boost safe-haven demand .

Crypto Assets
Bitcoin tends to move inversely to the dollar, and Glassnode data shows this inverse correlation at its most negative on record . A firmer dollar from smaller deficits would therefore weigh on BTC. A Democratic sweep is considered the most negative scenario for crypto by TD Cowen, given the likelihood of tougher oversight from a Democratic Senate Banking Committee . However, President Trump retains veto power, and regulators under his administration continue to advance rules favorable to the industry .

The policy area I am watching most closely is crypto regulation. The CLARITY Act’s fate depends on Senate control, and the industry has spent over $200 million this election cycle to influence outcomes . A split Congress with Republicans holding the Senate would be a better outcome for crypto than a Democratic sweep, as it would allow negotiators to retain their committee positions and potentially revive market-structure legislation in 2027 .

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