Midterm Election Results: Decisive for Democrats

Democrats have won control in the House & Senate, although some races are still being counted. The decisive results point toward our 'cohesive' Democratic majority scenario: key market implications include incrementally negative AI sentiment on greater expectations for data center restrictions. In a cohesive Democratic majority scenario, uncertainty due to a change in control can act as a headwind to equity markets on the index level, similar to 2022 midterm volatility. However, potential delays in SNAP/Medicaid cuts provide a tailwind to consumer sectors and some upside risk to growth forecasts. The party-line reconciliation route is closed and removes the main source of upside to Treasury's borrowing needs. Four things to focus on: fiscal policy, where OBBBA SNAP and Medicaid cuts may be rolled back, extended or softened, with deficits staying around 6% of GDP; executive-led policy on tariffs, geopolitics, trade and export controls, which is likely to persist; and data center restric