Chiavarone, Cunningham and Gallo see equities rising after midterms

Democrats took both chambers of Congress in the 2026 midterms, a result three chief investment officers wrote on Nov. 10 does not change the monetary or fiscal outlook on its own.

Prior to the vote, the three wrote, only two outcomes could meaningfully change monetary and fiscal policy: a Republican sweep with wider voting margins, or a filibuster- and veto-proof Democratic wave. Steven Chiavarone is chief investment officer for global equities, Deborah Cunningham for global liquidity markets and RJ Gallo for global fixed income.

For a general account holding duration, the note reads as an argument against repositioning around a large fiscal package. The CIOs hold that divided government blocks drastic legislation and, in this case, raises the odds that modestly stimulative policy passes. Their equity call points the same way: volatility in the coming weeks, then gains.

88 years have passed since the S&P 500 last posted a negative return in the 12 months after a midterm, and the average return over that window is 14%, the CIOs write. They offer two reasons: a president's party, stung by a poor result, pushes policies meant to improve its chances in the next presidential election; and divided government blocks drastic legislation that can unsettle investors.

Liquidity and fixed-income investors look instead to the Fed, whose perspective the CIOs judge unlikely to have changed. They write that the Fed might have wanted to raise rates at its October meeting, with inflation still stubbornly high. On their reading, the Fed rather than the Capitol is the variable for cash and short-duration books.

The bond market's own reaction was mild. The 10-year Treasury yield fell 4.7 bps on the Democratic sweep, as Insurance Capital Daily previously reported. The CIOs are looking past the noise, citing strong economic growth, a significant infrastructure buildout and what they describe as a potentially exceptional earnings cycle. The open variable for general accounts is size: how much modestly stimulative policy a divided Congress can pass.