ROI-Biggest market impact of US midterms may be 2028 countdown: Mike Dolan

Next week's US midterm elections ​could throw up a host of issues for investors to digest, but the biggest of all may be ​the start of a countdown to the 2028 White House race. If, as betting ‌markets ​suggest, there's more than a 50% chance that Democrats make a clean sweep of both legislative chambers, then a classic case of domestic policy gridlock between the presidency and Congress would follow for the remaining two years of Donald Trump's final term.

Trump will keep the reins of his disruptive US foreign policy for another two years. How he manages military or trade agendas ‌without congressional backing, or amid potentially ebbing support within his Republican Party, may have huge implications for several investment fronts, most obviously global energy markets and supply chains. Gridlock also raises several domestic macroeconomic questions, from another government debt-ceiling standoff early next year to the jettisoning of further cryptocurrency market legislation or additional regional efforts to stall AI data-center construction.

All could pack some punch. Yet these risks might pale beside a gradual rethink of who takes the presidency in 2028, and a rethinking or repricing of the durability of the seismic US ‌domestic and global policy agenda pursued since 2024.

JPMorgan's Center for Geopolitics reckons domestic policy gridlock, presidential "legacy seeking" and a starting gun for the 2028 race are the three main areas to watch after next week. The bank applies these dynamics to ‌flashpoints including Iran and the wider Middle East, Ukraine and Russia, Latin America, China and NATO.

"The midterms will kickstart the debate over what comes after 2028 and beyond," the bank's analysts wrote. "Questions that once commanded broad bipartisan consensus — from the transatlantic relationship to Russia and China policy — are increasingly up for debate in both parties." While the JPMorgan note focused on geopolitics, the idea that investors might quickly focus on 2028 is intriguing and raises the question of just how far markets have come in two years.

HORIZONS AND SUNSETS A proxy for how market speculation may be shaping up can be seen in the far-from-infallibleprediction markets, themselves ⁠a focus of policy ​debate ahead of the midterms.

As it stands, the Polymarket and ⁠Kalshi betting sites put the chance of Democrats taking both chambers next week at more than 60%, with a better than 90% chance of winning at least the House of Representatives. Even though there appears to be much lower conviction this far out about which candidates might run in the 2028 race, ⁠the odds appear roughly even on whether a Democrat or Republican would win the White House in two years' time.

A long way to go. But a potential shift in Washington's political tilt has to be on investors' radar. It may be too soon to plan trades, but one ​way to look at it is to tally up what's happened in aggregate to major world markets since Trump's 2024 win.

At this stage, Wall Street's S&P 500 and MSCI's all-country stock index have both gained just over 30% in ⁠those two years. The tech-heavy Nasdaq has outperformed, climbing 42%, while the "Magnificent Seven" tech megacaps have risen marginally more, at 45%, and the Philadelphia Semiconductor Index has more than tripled on the AI boom. World crude oil prices are up 53%, with all of that coming since the Iran war in February. US defense stock ⁠indexes have, ​surprisingly, underperformed wider benchmarks with net gains of 27%, while European equivalents are up more than twice as much, at 60%.

The US dollar and Treasuries are in the red for the period, though Trump campaigns for dollar reversals have not come to much overall, and the dollar index against the major currencies is down less than 2% on balance. The 100-basis-point jump in 10-year Treasury yields since 2024 speaks to the inflation and monetary policy impact of an AI-stoked economy, Trump's tariffs and Iran-fueled oil ⁠shocks.

Much of the market's move may owe more to AI than to Trump, though some gains relied on his foreign policies and others were amplified by his approach. No recession has unfolded so far, and economists doubt one arrives in ⁠the next couple of years. Might that long-absent cyclical downturn return before ⁠or after a change of president? Either way, if 2028 is now on the horizon and Trump's worldview is already in sunset, there may be some debate about how markets need to adjust.

(The opinions expressed here are those of Mike Dolan, a columnist for Reuters.) Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary.

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(By Mike Dolan; Editing by Marguerita Choy)