Why the US Midterms May Matter Less to Markets Than the Risk of Renewed War

The US midterm elections are attracting significant political attention, but their immediate influence on financial markets may be smaller than investors expect.
A similar argument emerged during the 2022 midterms, when the widely anticipated Republican 'red wave' failed to materialize. Despite the political surprise, the election result did not produce the sustained market disruption some observers had expected.
The current environment presents an additional complication: the possibility of renewed military escalation between the United States and Iran.
Oil prices, inflation expectations and geopolitical risks could have a more direct influence on asset prices than the eventual balance of power in Congress.
Election outcomes can still affect fiscal policy, regulation and longer-term investment expectations. However, the argument is that markets may prioritize developments with more immediate consequences for economic growth, energy supply and financial conditions.