As the United States midterm elections approach, markets are bracing for potential volatility amid expectations of a significant shift in political power. Despite President Donald Trump’s name not being on the ballot, his influence is central, with Democrats widely favoured to secure control of both the House and Senate. Matt Gertken, chief geopolitical strategist at BCA Research, suggests that while individual race outcomes may vary, the broader implications for markets and Trump’s future actions have been largely predictable for months. BCA Research is a leading independent provider of global macro research. The firm offers strategic analysis and forecasts across various asset classes, helping investors navigate complex market environments.
Gertken anticipates that a Democrat-controlled Congress will lead to domestic gridlock, prompting President Trump to intensify his focus on foreign affairs, a trend already observed due to slim Republican majorities. This shift is expected to manifest as increased pressure on Iran. While initial market reactions to potential attacks on Iran might include rising oil prices and higher bond yields, Gertken argues Trump’s ultimate goal will be a swift resolution. A “ceasefire dividend” is envisioned, where a negotiated agreement with Iran could stabilise oil prices around US$90 a barrel, thereby alleviating some economic concerns.
Building on this, Gertken projects Trump will then leverage this momentum to pressure Russia towards a ceasefire deal with Ukraine. This sequence of events, culminating in geopolitical de-escalation and continued economic growth propelled by artificial intelligence, presents a “pretty promising” outlook for markets. Gridlock in Washington, by preventing significant tax cuts or spending increases, is deemed beneficial for markets as it is non-inflationary, potentially extending the bull run until 2027. However, the path beyond 2027 becomes less clear, with factors such as potential higher US taxes if Democrats gain presidential favour in 2028, and AI regulation, posing future headwinds. Volatility, therefore, remains a key expectation for investors in the coming period.
