What the US Midterms Could Mean for Markets, Oil and the Rest of Trump’s Term

What is your read going into tonight, which way do you see Congress going, and which scenarios are markets weighing most?

Markets have now come to the realization that Democrats will have a very strong performance today. Presidential disapproval is at 65%, levels reminiscent of Richard Nixon, the first president in US history to resign from office. I am not saying the president will resign, but it shows we are at crisis levels of disapproval. In midterm elections the tendency is for voters to rebuke the ruling party, so we have a midterm curse combined with dissatisfaction over the war in Iran and gasoline prices. That will lead Democrats to outperform expectations and win the Senate as well as the House.

If we end up with a split Congress, a Democratic House and a Republican Senate, what does it mean for tariffs, spending and the deficit?

It is actually quite innocuous for the markets. Gridlock means the president cannot cut taxes any further in 2027 or 2028, and Democrats will not be able to deliver the spending or social benefits wish list they want for their voters. They keep each other in check. The result is sometimes government shutdowns or disagreements, but in the end continuing resolutions keep government funding flat. Fiscal policy is neutral, and with an inflation issue, neutral fiscal policy does not fan the flames. The bond market will be somewhat appeased, and it will not be as much of a problem for stocks either.

If one party takes both chambers, how does the picture change for investors?

If Democrats only take the House, which could still happen at maybe a 25% probability, they would only be able to obstruct and engage in political games, trying to set themselves up as a better party for 2028. That is chaos that markets will largely ignore, though it can introduce a little more uncertainty. If they win both houses, as I expect, they are forced to actually govern. They have to craft bills, and they might be quite popular bills that the president is reluctant to veto. President Trump is a political chameleon and is probably willing to sign a popular bill. Because a bipartisan bill takes longer to negotiate, the market has plenty of time to prepare and the outcomes are largely consensus. So I think it is a less bumpy ride if Democrats control both houses. Historically, when the opposition wins both houses, the real total return on the S&P 500 over the next 12 months is better than otherwise.

Does tonight's outcome change US policy toward Iran, and what does that mean for oil and the Gulf?

It does not really change foreign policy. Gridlock typically forces the president to use executive action, and foreign policy and national security are areas where the president has enormous sway. In 2026 we have already seen this transition. Republicans only had a three seat majority and were not able to pass legislation, and the president invaded Iran. So we have already seen the move from gridlock to foreign adventurism. The president will stay focused on executive action, such as cracking down on immigration and maybe more tariffs, but he will also have to stay committed to a foreign policy agenda in the last two years of his second term, which means negotiating ceasefires in Iran and Ukraine. That is not extremely negative for markets, but over the next three months right after the election it could mean an intensification of strikes to shape the Iranians into a more realistic ceasefire, and that would be disruptive in the near term.

For viewers in the UAE and across the region, what should they pay the most attention to?

Watch whether Democrats beat expectations in Maine, where results come in early, and how they do in North Carolina, where they should do very well. Then the focus shifts to Ohio and Michigan, and finally Texas. It is critical for Democrats to win Michigan, Ohio and Texas to win the Senate, and Texas is a tough battle. But really, it is the oil price and the first actions the president takes after the election. What are his targets in Iran when he intensifies strikes? Do they suggest face saving maneuvers, or a real escalation that could affect energy infrastructure? That is the key signal, because a big oil price spike would drive up bond yields and pull down stocks.

What changes for the rest of President Trump's term under each outcome, and does he lean more on executive action if he loses the House?

He leans more on executive action either way, and we have already started to see that. But if Democrats win both houses as expected, they will need to put forward legislation and the president will have an opportunity to sign bipartisan bills and make compromises, which would actually lift his approval rating and help restore his legacy. He will be a lame duck, inevitably, but he is not completely abandoning his legacy. That means he will also have to be careful how he treads in the Middle East, which is good for investors if they believe he is still constrained to preserve the business cycle and give the Republicans a fair bid in 2028.

What are the one or two things investors should be watching?

What could rattle the stock market in the short term is a complete blowout victory for Democrats, where they not only win the key states I highlighted but win battlegrounds that are uncharted territory for them, like Kansas. If they end up with 54 or 55 Senate seats, it will cause a little more volatility. Volatility right now is on the low end of where it normally is in midterm elections, but a huge shift would imply a higher probability of a sweep in 2028, and with it a higher probability of historic tax increases and regulation. So volatility could be a little more acute in November. But long story short, it is not going to prevent the bull market from continuing just because the US had a midterm election and a gridlocked government.