The midterm elections may overturn current balances and transfer political influence into different hands
For some of the largest corporate groups in the USA, close ties with the federal government constitute a core component of their business strategy.
The midterm elections, however, may overturn current balances and transfer political influence into different hands.
If Democrats manage to prevail in one or both houses of Congress, they will gain greater capacity to intervene in corporate affairs through investigations, oversight of federal spending, and pursuit of legislative changes. Their influence, however, will not be unlimited. President Donald Trump will continue to hold veto power, as well as broad authorities over tariffs, immigration policy, and federal oversight.
Historical experience shows that stock markets have trended positively during periods of divided government. Specifically, under Republican presidents, the S&P 500 has posted an average annual gain of 23% following midterm elections when Congress was under split control. The corresponding figure is limited to 16% when Democrats control both legislative chambers, according to a Morgan Stanley study released on Thursday. Analysts often attribute this difference to political gridlock that restricts the capacity to push major policy changes.
However, some analysts express skepticism as to whether this specific historical pattern can repeat under present conditions.
«We don't think this trend will hold this time, and we continue to see many reasons to stay positive on the US equity market», stated Ariana Salvatore, head of US public policy research at Morgan Stanley.
For investors, the electoral contest can directly affect which corporations retain existing privileges and access to decision-making centers in Washington. Particularly exposed appear sectors such as the defense industry, healthcare, banks, and artificial intelligence.
«There are specific policy changes that could impact the market, at least in certain pockets», pointed out Jeff Buchbinder, chief equity strategist at LPL Financial.
More congressional investigations and corporate subpoenas
Gaining control of either the House of Representatives or the Senate will grant Democrats the ability to assume chairmanships of key committees and issue subpoenas. In this way, they will be able to demand document production, summon executives for depositions, and organize public hearings involving corporate figures.
Corporations have already had a first glimpse of what might follow.
On October 21, Senator Richard Blumenthal, Democrat from Connecticut and ranking member on the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations, requested records from companies that funded the construction of the White House ballroom. Among the corporations targeted by the request were Cisco, Salesforce, ServiceNow, Kraken, and Apple, as well as Nvidia. According to documents obtained by the Washington Post, each of the latter two companies had committed 25 million dollars to the specific project.
Concurrently, Representative Jamie Raskin, Democrat from Maryland, has separately requested records regarding tariff exemptions, including correspondence involving former Apple CEO Tim Cook. Democrats are examining whether Trump leveraged his administration's trade policy to favor political allies and donors.
Although financial contributions do not in themselves constitute evidence of unlawful activity or preferential treatment, congressional investigations can create significant headaches for businesses. Subpoenas demand time and resources from management, risk exposing internal communications, and generate negative publicity. For CEOs, after all, the prospect of public confrontation with lawmakers before television cameras is anything but pleasant.
«It creates volatility, because headline risk is introduced», noted Monica Guerra, head of policy and geopolitical strategy at Morgan Stanley, assessing that Democrats could significantly broaden the scope of their investigations.
Democratic scrutiny encompasses Trump family businesses, government contractors, companies linked to the investment firm 1789 Capital run by Donald Trump Jr., as well as business ventures associated with Elon Musk and the so-called Department of Government Efficiency.
Federal spending: Medicaid funding alterations on the table
One of Congress's most significant levers of influence is control over public financial resources and determining priorities in federal spending.
The tax and budget law enacted by Trump in 2025, known as the One Big Beautiful Bill, is projected to reduce federal spending on Medicaid by 911 billion dollars through 2034. The estimate derives from an analysis by KFF, based on projections by the Congressional Budget Office. KFF is a non-profit organization specializing in health policy data and analysis.
At the same time, starting January 1 or earlier in certain states, new work requirements are expected to take effect for Medicaid beneficiaries. Constrained state budgets may also lead to fewer enrolled citizens and exert additional pressure on healthcare provider reimbursements.
Molina Healthcare derives a significant portion of its revenue from this program. Specifically, in 2025 it collected 32.2 billion dollars from Medicaid, representing 75% of its total premium revenue, according to its annual filing with the Securities and Exchange Commission. In the same document, the company warned that potential loss of state contracts or renewals under less favorable terms could cause a significant reduction in premium revenue.
A Democrat-controlled Congress would not have the ability to unilaterally repeal the 2025 statute. It could, however, leverage budget approval negotiations, which require broader parliamentary consensus, to pursue funding modifications or postpone certain cuts.
«They're probably going to try to reverse these cuts to Medicaid», Jeff Buchbinder told CNBC. As he explained, preserving coverage could help stabilize membership rolls at Medicaid managed care firms as well as patient volumes at hospitals.
Hospitals also face substantial challenges. Reductions in insured individuals can increase uncompensated care, while state-level fiscal pressures may further squeeze reimbursement rates, according to KFF. To mitigate impacts, Congress established a dedicated 50 billion dollar rural health fund over a five-year horizon. However, both KFF and healthcare providers have noted that these resources do not suffice to offset broader Medicaid cuts.
Democratic victories could, nevertheless, create additional headwinds for the healthcare industry. The same lawmakers seeking to safeguard Medicaid funding may concurrently intensify scrutiny of insurance firms, hospitals, and pharmaceutical groups, focusing on pricing, coverage policies, and profit margins.
Defense industry: Political clash over billion-dollar contracts
Corporations operating in the defense sector face a critical debate regarding which weapons systems and military programs will ultimately receive funding from Congress.
The White House has submitted a request for defense spending of 1.5 trillion dollars for fiscal year 2027. Priorities include replenishing military stockpiles, bolstering operational readiness, and meeting other defense requirements, some of which are tied to the war in Iran.
Furthermore, the US administration is asking Congress to approve supplemental funding of 87.6 billion dollars for fiscal year 2026, primarily concerning military operations related to Iran.
A congressional shift favoring Democrats could lead to challenges against specific line items involving Iran and Israel, while simultaneously intensifying pressure for expanded military aid to Ukraine. However, several analysts expect major procurement programs to continue enjoying bipartisan support. These include deterring China, modernizing the nuclear triad, and advancing missile defense systems.
For defense contractors, political decisions could translate into contracts and orders worth billions of dollars.
A prime example is Lockheed Martin, which recently agreed on a framework with the Pentagon for the procurement of 850 F-35 fighter jets over a decade. The agreement, however, has yet to take definitive contractual form, as congressional authorization is required for the multi-year buy and corresponding funding.
«It's about being company-specific and not taking a broad brush approach», Monica Guerra told CNBC, highlighting shipbuilding, autonomous systems, and missile defense as sectors positioned to benefit.
Cryptocurrency: Uncertainty over the new regulatory framework
For firms active in the digital asset market, the midterm elections may determine whether regulatory changes advanced by Trump achieve permanent statutory standing or remain vulnerable to potential administrative shifts.
Industry efforts to secure a stable, long-term regulatory architecture suffered a blow in September when the Senate failed to advance the Clarity Act, a comprehensive market structure bill backed by Trump.
The failure to progress the legislative measure sparked sharp selling across industry stocks. Shares of Coinbase and stablecoin issuer Circle retreated by up to 11%.
Congressional approval of a relevant bill by the next legislature may, however, carry stricter terms. Increased Democratic strength would afford greater leverage to demand enhanced consumer safeguards, restrictions on yield-bearing stablecoins, and tighter oversight of Trump's own cryptocurrency ventures.
«In a way, the industry doesn't really care who gets elected. What they want to know is what the rules of the road are going to be for next year», stated Sam Stovall, chief investment strategist at CFRA Research.
Banking: Easing of capital requirements on the table
The banking sector is also seeking changes in the regulatory landscape, with lenders pursuing greater certainty regarding future implementation of rules.
Federal banking regulators estimate that proposed revisions to the capital framework could reduce requirements for the largest banks by approximately 4.8%. Such an outcome would potentially free up billions of dollars that could be redirected toward loan origination or shareholder returns.
The Federal Reserve holds rulemaking authority. However, the Senate plays a decisive role in confirming nominees to future regulatory vacancies, while congressional committees can exert pressure through oversight hearings and inquiries.
«That's one area of regulatory policy where things could happen that move the needle», noted Jeff Buchbinder.
Artificial intelligence: The 1 trillion dollar political gamble
The artificial intelligence sector represents perhaps the most intricate case regarding potential political and economic ramifications of the elections.
Trump has framed rapid data center expansion as a paramount priority for both the economy and national security of the USA. According to projections by Morgan Stanley, leading tech titans, including Microsoft, Amazon, Alphabet, and Meta, are expected to spend more than 1 trillion dollars combined on capital expenditures in 2027.
This massive investment drive unfolds, however, against a backdrop of mounting backlash over data center impacts on utility bills, water resources, and infrastructure development costs.
Findings from a nationwide CNBC poll conducted in October capture the scale of public pushback. Specifically, 63% of registered voters oppose the construction of a data center within 10 miles of their residence. Conversely, barely 13% favor such facilities. Opposition proves more pronounced among Democrats compared to Republicans.
The pushback has already reached Congress. In September, the House of Representatives approved with an overwhelming majority of 417 votes to 3 a measure directing state regulators to consider requiring major data facilities to shoulder the incremental cost of grid infrastructure needed for their operations.
The initiative stalled in the Senate, however, securing 57 affirmative to 43 negative votes in a procedural tally. Democrats argued the bill lacked sufficient teeth and demanded mandatory safeguards rather than leaving compliance to voluntary corporate self-regulation.
Consequently, the midterm elections may dictate which camp exercises ultimate sway over rule-setting. Stronger Democratic representation could saddle tech companies with higher grid modernization costs, driving up aggregate project budgets. Such a development would prove particularly critical when constrained power grid access already forms a major roadblock to new site construction.
Nonetheless, Congress is not the sole arbiter of these investments. State utility commissions, power providers, and municipal governments will continue to play a decisive role both in selecting grid interconnect locations and permitting new facilities.
«We do think the election could have consequences, but they're going to play out mostly at a very local level», stated Ariana Salvatore.
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