The 2026 U.S. midterm elections could create political uncertainty, but JPMorgan sees limited downside for equities regardless of which party controls Congress.
According to a scenario analysis by JPMorgan Market Intelligence, based on Bloomberg prediction market data as of Nov. 1, the S&P 500 could gain between 0.25% and 1.25% across three of the four possible congressional outcomes. Even a Democratic sweep, the most likely outcome, carries a projected reaction ranging from a 0.25% decline to a 0.50% gain.
The analysis assigns a 66% probability to Democrats winning both chambers (Blue Wave), a 26% probability to a Democratic House and Republican Senate (Split Congress), a 7% probability to a Republican sweep (Red Wave) and just 1% to a Republican House and Democratic Senate (The Other Split).
The findings suggest investors may want to focus less on predicting the election winner and more on positioning their portfolios for the potential policy and sector implications.
Five ETFs to Watch
1. State Street SPDR S&P 500 ETF Trust (NYSE:SPY)
The broad-market benchmark is the most direct way to position for JPMorgan's relatively benign outlook. With projected S&P 500 moves confined to a narrow range, investors may prefer diversified exposure over concentrated political bets.
2. Invesco QQQ Trust (NASDAQ:QQQ)
A Democratic sweep could revive concerns about AI regulation and scrutiny of mega-cap technology companies. JPMorgan, however, argues that legislative restrictions face significant hurdles, making any AI-related pullback a potential buying opportunity for AI bulls. QQQ offers exposure to major technology and AI beneficiaries.
3. State Street Health Care Select Sector SPDR ETF (NYSE:XLV)
Health care could emerge as a beneficiary of a Democratic victory, with policy priorities potentially shifting toward health care affordability and funding. Reuters identifies health care stocks as one of the sectors that could benefit from a strong Democratic showing.
4. iShares Global Clean Energy ETF (NASDAQ:ICLN)
Clean energy stocks could attract renewed attention under a Democratic-controlled Congress. Potential changes to renewable energy incentives and environmental policies could influence the sector's outlook.
5. iShares U.S. Aerospace & Defense ETF (BATS:ITA)
A Republican sweep could support defense stocks if the administration maintains its spending priorities. Reuters notes that increased defense spending is among the potential implications of continued Republican control.
The election may matter more for sector leadership than for the S&P 500's overall direction. JPMorgan's projections suggest that investors should watch policy-sensitive industries while keeping broad-market exposure.
However, these are illustrative ETF examples, not specific fund recommendations from JPMorgan. The actual market reaction will also depend on corporate earnings, interest rates and Treasury yields.
