Midterms Could Shift Power for Major U.S. Industries

Lockheed Martin derives about 70% of its sales from the U.S. government, while Molina Healthcare earns three-quarters of its premium revenue from Medicaid. Coinbase is waiting for Congress to finalize cryptocurrency regulations.

A Democratic majority in either or both chambers of Congress could grant the party new leverage to investigate companies, challenge federal spending, and demand legislative concessions. However, President Donald Trump retains his veto power and authority over tariffs, immigration, and federal regulation.

Historically, stocks have performed better under divided government, with the S&P 500 averaging 23% gains in the year after midterms when Congress was split, compared to 16% when Democrats controlled both chambers. Analysts attribute this pattern partly to congressional gridlock limiting major policy changes.

Some analysts caution that this historical trend may not hold this time. Morgan Stanley's Ariana Salvatore noted that the previous pattern may not apply, and there are still reasons to be optimistic about the U.S. equity market.

Congressional oversight and investigations could reshape corporate strategies. Democrats gaining control of either the House or Senate would grant them subpoena power, allowing them to demand documents, compel testimony, and hold executives accountable through public hearings.

Sen. Richard Blumenthal has requested records from companies linked to Trump's White House ballroom, while Rep. Jamie Raskin is seeking information on tariff exclusions involving Apple's former CEO. Subpoenas can consume executive time, reveal internal communications, and lead to unpredictable media coverage.

Federal spending decisions could also shift. Trump's 2025 tax cuts and spending law are projected to reduce Medicaid spending by $911 billion through 2034, according to a KFF analysis of Congressional Budget Office estimates. Molina Healthcare, which earns 75% of its revenue from Medicaid, warned that losing government contracts could significantly impact its premium revenue.

A Democratic-controlled chamber could not repeal the 2025 law but might use budget negotiations to seek funding changes or delays. However, such actions could also lead to increased scrutiny of healthcare providers and insurers over pricing and coverage.

Defense contractors face uncertainty over funding for weapons and programs. The White House has requested $1.5 trillion for national defense in fiscal 2027, with a focus on replenishing weapons and bolstering readiness. A Democratic Congress could challenge some Iran- and Israel-related spending while pushing for more aid to Ukraine.

Crypto companies are awaiting congressional action on regulations. The Senate failed to advance the Trump-backed Clarity Act in September, leading to a drop in shares of Coinbase and Circle. Democratic gains could lead to stricter consumer safeguards and tighter scrutiny of Trump's crypto businesses.