Three weeks remain until the US congressional elections. Inflationary pressure, the war with Iran, contradictions over support for Ukraine and the high concentration of stock market growth in the artificial intelligence sector make the November vote a potential catalyst for risk reassessment.
Who stands to gain from a Democratic or Republican victory - and which assets should investors watch?
The American economy today displays a paradox. The stock market is near historic highs, capital continues to finance colossal AI infrastructure construction, and consumers increasingly feel the rising cost of energy, housing and borrowing. On October 12 the S&P 500 closed at 7,807.24 points, despite a tense news backdrop. This combination does not mean an inevitable crash. But it does mean the market has priced in a significantly calmer future than the one daily painted by geopolitics and macroeconomic statistics.
Over twelve years working in financial markets I have become convinced of one pattern: the most unpleasant drawdowns begin not when bad news is obvious to everyone, but when investors stop accounting for the possibility of their simultaneous appearance. In my view, this is exactly the phase of uncertainty the United States is entering ahead of the midterm elections on November 3.
Elections on November 3: this is not a referendum on one president
All House seats and part of the Senate will be up for re-election. Donald Trump himself is not running in these midterm elections. However, their outcome will determine how freely the White House can pursue budgetary, tax, energy and foreign policy decisions for the remainder of the presidential term.
Polls and public discontent over high prices create opportunities for Democrats. But turning this into an inevitable “blue wave” would be an analytical error. District boundaries, the relatively small number of truly competitive races, uneven turnout and the financial advantage of Republican electoral structures could substantially limit the scale of the opposition’s victory. According to Reuters’ October 12 assessment, only about 40–50 House districts remain competitive. Pre-election ratings are not the final distribution of seats.
For the market there are three fundamentally different scenarios.
Scenario one - Republicans retain control of both chambers. The White House keeps a relatively wide legislative corridor for tax decisions, deregulation, energy initiatives and budgetary priorities. This does not guarantee stock gains: investors could simultaneously face higher inflation, rising bond yields and trade restrictions.
Scenario two - Democrats win the House, Senate remains under Republican control. Parliamentary oversight and negotiations over spending will intensify. The likelihood of large-scale unilateral legislative changes will decrease, but the risk of budget conflicts and government funding disputes will rise. Divided government can be convenient for certain corporations if it restrains extreme regulatory decisions; for the market as a whole it is not necessarily positive.
Scenario three - Democrats gain control of both chambers. The White House will find it harder to pass new legislative initiatives without compromises. Investigations, budget negotiations and the fight for the 2027 agenda will come to the fore. At the same time, a Democratic majority will not automatically be able to revoke presidential powers in trade and foreign policy and does not guarantee a quick reversal of already implemented decisions.
The key question for the financial market is not only “who wins?”, but also “which initiatives after victory actually pass through Congress?”.
Money in politics: who benefits from Democrats, who from Republicans?
In the American system corporate interests rarely fall neatly into two tidy party columns. Companies work with both parties through legally registered lobbying, industry associations, political committees, and donations from executives and employees. Donations are not equivalent to proven control over legislators’ votes. Moreover, corporate funds, personal contributions and spending by independent political committees are different categories and should not be mixed.
Nevertheless, industry preferences are clearly visible.
Oil, gas and traditional energy. This sector consistently leans toward Republicans, who support expanded production, infrastructure permits and reduced environmental restrictions. According to OpenSecrets data, in the 2024 cycle about 88% of party-attributed political contributions from the oil and gas sector went to Republicans. Among the sector’s major donors were structures linked to Koch Inc. and Crownquest. Yet this does not mean that shares of Exxon Mobil, Chevron or oilfield services companies will necessarily rise if Republicans win: their profits depend primarily on commodity prices, capital expenditures, refining margins and global demand.
Technology and artificial intelligence. The picture here is far more complex. Large platforms, chipmakers, cloud providers and AI model developers are interested in infrastructure subsidies, data-center power supply, semiconductor export rules, antitrust policy and security standards. Democrats more often emphasize consumer protection, competition and platform accountability; Republicans emphasize accelerating investment and limiting regulatory burden. But both parties can support AI as a strategic sector while simultaneously imposing export restrictions on technology to China. Therefore NVIDIA, Microsoft, Alphabet, Amazon, Broadcom and other AI ecosystem leaders cannot honestly be labeled “Democrat stocks” or “Republican stocks.”
Venture capital, private equity and digital assets. Part of the venture and private-equity industry supports lighter regulation, tax incentives and access to capital. At the same time, funds are distributed between both parties: according to Axios analysis in the current cycle VenturePAC directed slightly more than half its contributions to Republicans. The cryptocurrency industry is building a coalition across party lines: in October Fairshake announced support for 32 House candidates, of whom 19 are Republicans and 13 Democrats. Its interest lies in rules for digital assets and oversight, not merely a partisan victory as such.
Defense industry. Here, contrary to the common cliché, the lobby is not exclusively Republican. It is pragmatically bipartisan. According to OpenSecrets data for the 2024 cycle, the entire defense sector directed approximately 54% of its party contributions to Republicans and about 46% to Democrats. However, the structure of individual companies varied: Lockheed Martin, Northrop Grumman and RTX showed a relative tilt toward Democrats, while General Atomics, Anduril and L3Harris tilted toward Republicans. This is a historical snapshot of the previous completed cycle, not proof of how all funds will be distributed in 2026.
The real influence of the defense-industrial complex is determined differently: by the defense budget, procurement programs, export permits, modernization programs, the work of congressional committees and the geography of defense enterprises. Jobs and production chains are distributed across states of both parties. Therefore interest in the defense budget almost always extends beyond party affiliation.
The main conflict inside the Republican Party: the promise of strength and limits on aid to Ukraine
Today the Republican camp shows a clear conflict between two foreign-policy approaches. One part of Trump’s supporters prefers to limit commitments to foreign partners, seek increased European funding and concentrate weapons stockpiles on priorities for the United States. Another part of Republicans, including influential hard-line national-security supporters, views excessive restraint on aid to Ukraine as a risk to American deterrence of Russia and to allies’ trust.
This conflict is not only ideological. It has financial and industrial components.
In June 2026 the House supported a Ukraine aid package exceeding $8 billion despite objections from Republican leadership. Eighteen Republicans voted for the measure alongside Democrats. Senator Mitch McConnell had previously criticized delays in delivering defense assistance. At the same time, the war with Iran has increased pressure on American stocks of ammunition and missile-defense systems, causing European allies to fear delays in deliveries under Ukraine support programs.
It is important to state the mechanism precisely: administration decisions can slow the transfer of individual weapons, budgetary procedures and export approvals. But to claim that Trump as a whole “halted defense-industrial production” would be incorrect. Moreover, replenishing America’s own arsenals can increase orders for industry. The problem lies more in the conflict between competing priorities, limited production capacity, budget constraints and the political choice of the final recipient.
For investors this creates an ambiguous yet potentially interesting situation. Increased demand for air-defense systems, missiles, precision munitions, unmanned systems and electronic-warfare equipment could drive revenue for certain defense contractors. Yet rising political demand does not instantly translate into profit: production capacity takes years to expand, margins on government contracts are limited, and companies bear part of the costs before payments arrive.
The most obvious public names to watch: Lockheed Martin - missile systems and military aviation; RTX - air defense and missile technologies; Northrop Grumman - strategic platforms and high-tech systems; General Dynamics - armaments, ground equipment and naval programs; L3Harris - communications, sensors and missile technologies; Huntington Ingalls - military shipbuilding. This is a list of companies sensitive to the defense budget, not a promise of returns.
If Congress after the elections increases pressure to expand aid to Ukraine and replenish arsenals, the market may revalue the future volume of contracts. If the White House strictly limits new commitments, programs will be revised or expectations already priced in, producing the opposite effect.
Market at highs, economy under pressure: why this is a dangerous combination
On October 1 Federal Reserve Vice Chair Philip Jefferson explicitly listed the main challenges: energy shock, massive AI infrastructure investments and significant changes in trade policy. This formulation essentially contains the central paradox of the American economy.
First, AI investments create growth but simultaneously concentrate risks. Money is flowing into chips, servers, data centers, power generation, transmission lines and cooling. As a result, a relatively small number of technology leaders exert a disproportionate influence on index capitalization. As long as revenue and free cash flow grow together with expectations, multiples can remain high. If AI monetization fails to justify capital expenditures, a correction could potentially spread far beyond the technology sector.
Second, expensive energy fuels inflation. The oil shock from the war with Iran passes through logistics, diesel, air transport, food production and consumer prices. Even with a resilient corporate sector, households feel a decline in purchasing power. For the Fed this complicates the choice between supporting growth and fighting inflation.
Third, the bond market can become a source of pressure on stocks. Rising Treasury yields mean a higher discount rate for future earnings. For companies whose valuation is based on cash flows many years out, this is especially sensitive. Higher borrowing costs simultaneously weigh on real estate, small businesses and consumers.
Fourth, political unpredictability raises the cost of capital. New tariffs, budget conflict, export restrictions or changes in sanctions can alter forecasts for entire industries within a day. Investors today must assess not one central scenario but an entire distribution of outcomes.
This is the state of market stress: when equity indices appear stable while the number of potential triggers for reassessment grows rapidly.
“Black swans”: which risks are especially underpriced today?
The term “black swan” is often applied too loosely. In its strict sense it is an unexpected event with disproportionate consequences, not any predictable negative scenario. War, high inflation and political conflicts are already known to the market. Their unforeseen escalation, chain reaction or unexpected source of crisis is another matter.
I highlight four zones where even a relatively small impulse can trigger a disproportionate reaction:
Energy gap. A new disruption in oil supplies, damage to infrastructure or a rise in shipping insurance costs can simultaneously hit inflation and corporate margins.
AI reassessment. A negative report from one systemically important link in the supply chain or signs of a sharp decline in the return on capital expenditures could trigger selling of related technology assets.
Political-budget conflict. A divided Congress, disputes over government funding or unpredictable decisions in trade policy can raise risk premia and cause swings in Treasury yields.
Sharp risk-off move. Interconnected positions in index funds, leverage and digital assets can amplify volatility when liquidity contracts simultaneously.
Probabilities and dates of such shocks cannot be honestly announced in advance. My conclusion is not that catastrophe is inevitable. It is that, given the current concentration of market expectations, the cost of error in any scenario is unusually high.
Four areas worth watching
1. Defense-industrial complex stocks. This is, in my view, one of the most interesting intersections of geopolitics, the federal budget and corporate cash flows. Attention should focus not only on politicians’ statements but also on orders for missiles and air-defense systems, growth in contract backlogs, production timelines, margins, budget appropriations and export licenses. Shares of individual contractors can react to congressional decisions more noticeably than the broad market, but the risk of overpriced expectations is also high here.
2. AI sector and the risk of bubble formation. I do not consider artificial intelligence fiction: it is a real technological transformation. But real technology and inflated valuations of its beneficiaries can coexist. The main task is to separate growth in revenue and profit from growth in capitalization based on expectations. Special attention should be paid to hyperscalers’ capital expenditures, data-center energy consumption, export restrictions, sustainability of demand for accelerators and free cash flow. In my understanding the question is no longer only “who will win from AI?”, but also “how much is the investor paying today for that future win?”.
3. Broad indices as a diversification tool. The S&P 500, Nasdaq-100, Dow Jones and the broader Russell 2000 offer different sensitivities to technology, industry and domestic American demand. Yet buying several indices does not automatically create diversification: compositions and risk factors overlap, and the S&P 500 and Nasdaq-100 both depend heavily on the same megacorporations. To manage concentration it makes sense to assess sector weights, the weight of the largest issuers, the quality of the bond component and asset correlations - especially in a stress scenario.
4. Cryptocurrencies as a barometer of liquidity and political expectations. Bitcoin, Ethereum and shares of crypto infrastructure companies are sensitive to dollar liquidity, interest rates, movements in risk assets and the regulatory agenda. Fairshake’s actions show that the crypto sector is not merely waiting for election results but is also trying to shape the future composition of legislators. Positive news about the legal regime for digital assets can produce strong price impulses. Yet when global liquidity deteriorates, cryptocurrencies can fall significantly faster than equity indices. This is primarily a source of high volatility, not a guaranteed hedge against political instability.
My conclusion: it is dangerous right now to confuse the stability of quotes with the stability of the system
Over twelve years of trading and observing markets I have repeatedly seen investors make the same mistake: treating index growth as proof that fundamental problems have been solved. But the stock market is a mechanism for discounting expectations, not a directory of the current state of the economy.
Today the United States approaches the midterm elections amid simultaneously high geopolitical tension, expensive energy, political polarization, inflationary risks and massive AI expansion. Each of these variables is manageable on its own. Their unexpected coincidence could become a source of sharp market movements.
A Democratic victory does not mean an automatic decline in defense or technology stocks. A Republican victory does not guarantee cheap energy and favorable cryptocurrency dynamics. Conversely, divided government does not always hurt the stock market. What really matters are the mechanisms - budgets, cost of capital, regulation, government contracts and liquidity.
My practical focus for the coming weeks is defense stocks, valuation of AI companies, quality diversification through broad indices and close monitoring of cryptocurrencies. In addition I would watch 10-year Treasury yields, oil prices, inflation statistics and specific congressional decisions. It is the combination of these signals, not any single political headline, that will show whether stress is becoming systemic.
We are entering a period when protecting capital may prove more important than trying to guess the winner of the next political conflict.
