The Democrats may win a majority in the U.S. Congress. Which stocks should you buy and sell?

Midterm elections will be held in the U.S. on November 3, which could shift the balance of power in Congress. The probability that the Democrats will secure a majority not only in the House of Representatives but also in the Senate is estimated at 72% on the Polymarket forecasting platform. Meanwhile, the probability that Republicans will retain control of both chambers is only 6%, according to Reuters.

Analysts surveyed by Reuters believe that a Democratic victory in the midterm elections could boost stocks in the green energy, housing, and healthcare sectors. At the same time, the AI sector and the defense industry face risks due to increased scrutiny from lawmakers. Even a “divided” Congress would give Democrats more control over investigations and budget funding, although they would have to overcome a likely veto by President Donald Trump.

Which sectors will investors be watching?

A decisive victory for the Democrats will reinforce expectations that federal support for environmental, social, and governance (ESG) initiatives will continue, which benefits solar panel manufacturer First Solar, residential solar installer Sunrun, inverter manufacturer Enphase Energy, and developer NextEra Energy, according to analysts surveyed by Reuters.

In 2022, the Democratic-controlled Congress passed the Inflation Reduction Act (Inflation Reduction Act), which allocated hundreds of billions of dollars for climate action and energy security, including tax incentives for renewable energy, the nuclear industry, and electric vehicles. In the event of a “divided” Congress, UBS sees room for bipartisan legislation to expedite the approval of energy and infrastructure projects and expects both parties to support nuclear energy.

Democrats will closely scrutinize the Donald Trump administration’s attempts to relax emissions standards and may invoke the Congressional Review Act (Congressional Review Act) to block loopholes that would allow the sale of gasoline-powered trucks and SUVs. Automakers Ford, General Motors, and Stellantis may come under pressure.

Analysts expect that a Democratic majority will lead to tighter regulation of the AI sector, according to Reuters. This could put pressure on data storage and memory manufacturers Micron Technology, SanDisk, and Seagate, whose stock prices have risen this year. A slowdown in spending on AI and data centers could affect semiconductor equipment manufacturers Applied Materials, Lam Research, and KLA; energy companies Constellation Energy and Vistra; and data center developers Quanta Services and Vertiv.

A Democratic majority is more likely to use its authority to compel tech executives to testify under oath or turn over documents regarding the harmful behavior of AI agents. Voters in more than 10 states may consider initiatives that would impose new restrictions, require permits, or halt the construction of data centers.

At the same time, Société Générale believes that investments in AI will remain attractive: the Democrats are unlikely to secure a majority to override Trump’s veto, and key federal agencies will remain under Republican control.

UBS expects the Trump administration to continue implementing the housing affordability bill passed by Congress in late June. The brokerage firm notes that if Democrats gain control of both chambers, they may introduce additional housing affordability measures, including restrictions on large institutional landlords, although these initiatives would face a veto from Trump.

The PHLX Housing Sector Index has fallen nearly 5% since the beginning of the year due to concerns about high interest and mortgage rates.

The sector’s outlook in the event of a Democratic victory is mixed, Reuters notes. Tighter oversight of Medicaid and Medicare Advantage programs could put pressure on insurers, although TD Cowen sees limited risk of major structural reforms in the industry. The S&P 500 Healthcare Index has risen more than 19% since the start of the year to record highs, second only to the energy sector in terms of performance, as investors flocked to safe-haven assets amid market volatility.

A Democratic-controlled House of Representatives would increase the likelihood of tax hikes to fund a budget plan with increased healthcare spending. ““A Democratic victory could give greater momentum to measures targeting healthcare costs, consumer fees, prescription drug prices, and factors believed to be driving up healthcare spending,” says Magdalena Ocampo, market strategist at Principal Asset Management.

Shares of defense companies rose in January after Trump called for an increase in the military budget to $1.5 trillion, up from the approved $901 billion, but subsequently lost most of those gains, Reuters notes. A vote on the budget is unlikely before 2027. Democratic control of the House of Representatives could bring military spending under closer scrutiny: analysts note that Congress has not yet allocated funds for the multibillion-dollar contracts that major defense contractors have signed to replenish weapons stockpiles.

Meanwhile, amid the ongoing conflict with Iran, companies such as RTX and Northrop Grumman are seeing strong demand for weapons, and their order books have reached record levels.

Analysts at Morgan Stanley believe that additional oversight in the event of a Democratic victory could slow the pace of deregulation in the financial sector, but is unlikely to halt the process.

A stronger Republican presence would support regulatory certainty and policy continuity. Barclays analysts note that the continued favorable environment for mergers and acquisitions and capital market activity remains an important driver of earnings for large banks. Quarterly results from JPMorgan, Citigroup, Goldman Sachs, and Wells Fargo pointed to a possible slowdown in the boom in deals and trading activity that had driven record profits in the first half of the year.

According to analysts, the election results are unlikely to have a significant impact on cryptocurrency prices, but they will affect the pace at which relevant legislation moves through Congress, Reuters reports. In September, the Senate failed to advance the Clarity Act, a bill to regulate the digital asset market, due to opposition from Democrats. Analysts believe that the Democratic-controlled Senate will make it difficult to bring the bill back onto the agenda next year.

Democrats in Congress are preparing investigations into crypto companies linked to Trump and his family, seeing these ties as a potential conflict of interest, Reuters reports. This could create a negative media environment and legal risks for a number of public companies in the industry, lawyers told Reuters.

This article was AI-translated and verified by a human editor