National Bank of Canada strategist Angelo Katsoras assesses how the 2026 US midterms could alter policy under President Trump, with Democrats described as favoured by high inflation, rising petrol and food prices, an unpopular war with Iran and the President’s low approval ratings. He also cites Democrats’ roughly seven-to eight-point lead in the generic congressional ballot, and frames two central scenarios: Republicans losing control of one chamber or of both.
If Democrats take the House, the analysis points to tighter constraints on the administration’s legislative agenda, with trade policy among the areas affected, alongside expanded scope for investigations and oversight. A Democratic sweep of both chambers is presented as a deeper setback, potentially weakening Trump’s standing within the Republican Party if electoral losses are attributed to him. Beyond the midterms, the report expects policy uncertainty to rise as focus shifts to the next presidential administration’s priorities.
Market Volatility and Trading Strategies Ahead of the Midterms
We are approaching the 2026 midterm elections with high political tension, meaning derivative traders should prepare for significant market swings in the coming weeks. With Democrats holding a strong seven-to-eight-point lead in generic congressional ballots, the prospect of a legislative deadlock or a complete Democratic sweep is highly likely. To navigate this uncertainty, we recommend building long volatility positions, such as buying VIX call options, as the market begins pricing in these potential policy shifts.
Stubbornly high inflation, coupled with elevated food and gasoline prices, continues to squeeze consumer sentiment and pressure corporate margins. Historically, when inflation remains high ahead of midterms, equity market volatility increases by an average of 15% in the two months leading up to the vote. Derivative traders should consider using bear put spreads on consumer discretionary ETFs to hedge against downward pressure if election anxieties further dampen holiday spending.
Additionally, geopolitical tensions and the unpopular conflict involving Iran have kept energy markets highly unpredictable. We advise trading energy derivatives, like crude oil straddles, to capture sharp commodity price moves regardless of which direction the news breaks. This strategy allows us to profit from sudden crude oil spikes without needing to predict the exact political outcome.
Post-Election Market Dynamics and Strategic Opportunities
Historically, the S&P 500 has risen in the 12 months following every single midterm election since 1950, averaging a return of over 14 percent. If Congress becomes divided, the resulting political gridlock often reassures markets that major tax hikes or regulatory overhauls are unlikely to pass. We should look to accumulate cheap, longer-dated call options on broad market indices to position ourselves for this reliable post-election rally.
