Election day looms: JPMorgan predicts market response to midterm results

The most likely scenario, with a 66% probability, is a “Blue Wave,” where Democrats gain control of both the House and the Senate. This outcome could lead to a slight dip or rise of 0.25% to 0.50% in the S&P 500. Potential concerns include possible increased regulation of technology companies and artificial intelligence, although JPMorgan believes such measures would likely face a presidential veto. A reduction in deficit spending is also anticipated, potentially impacting bond yields and prices. There’s also a risk of investigations into business leaders with ties to Trump campaign donations.

A split Congress, with Democrats controlling the House and Republicans the Senate, is considered a 26% possibility. This scenario could see the S&P 500 increase by 0.5% to 1%, driven by relief over potential legislative gridlock. Similar to the Blue Wave scenario, longer-dated bond yields could decline. The possibility of investigations into business leaders also remains.

A “Red Wave,” where Republicans maintain control of both chambers, has a 7% chance of occurring. If this happens, the S&P 500 could climb 1% to 1.25%, due to the absence of new regulatory risks. This outcome could also potentially escalate tensions with Iran and lead to higher deficit spending and bond yields.

The least probable scenario, with a 1% chance, is a Republican-controlled House and a Democratic Senate. This split Congress could result in the S&P 500 rising 0.25% to 0.75%, alongside legislative gridlock and potential government shutdowns. Investigation risk would also persist due to the Senate’s investigative powers. Regardless of the final result, the elections are expected to provide a degree of clarity for investors.