The US holds national congressional elections every two years, even when the president is not up for re-election. The vote that falls halfway through a four-year presidential term is known as the midterm election.

Unlike Israel’s parliamentary system, the US separates the executive from the legislature. The president serves a fixed four-year term, while Congress is elected on its own cycles. A president who won comfortably can therefore find, two years in, that the balance of power on Capitol Hill has shifted. Passing laws, approving budgets and delivering on economic promises may then become harder.

The midterms are not a formal referendum on the president. They do serve as a political test of the administration, and they set the limits of what it can achieve in the second half of its term.

Two chambers, two centres of power

Congress has two bodies: the House of Representatives and the Senate. A regular federal bill generally needs the approval of both, followed by the president’s signature or a veto override.

The design balances population against statehood. California has far more House seats than Wyoming, but each state has two senators.

Every House seat is contested every two years, so a modest swing in voter sentiment can flip the majority. Only about a third of Senate seats are up in each cycle, which gives the chamber continuity and slows the pace of change.

What’s on the ballot on November 3

All 435 House seats are up, along with 35 Senate seats: 33 in the regular cycle and two in special elections.

President Donald Trump is in the first two years of his second term, and Republicans control both chambers going into election day. The results will determine whether that alignment holds for the next two years.

Voters will also choose governors, state legislators and other officials. These races carry economic weight too, since the states run large budgets and oversee infrastructure, education and parts of business regulation.

Why Wall Street is watching

For markets, the key question is not just which party controls Congress. It is what the split of power allows policymakers to actually pass.

Corporate and capital gains tax. Congress writes federal tax law. Changes to the corporate rate, investment incentives or capital gains tax can move company earnings, cash flows and investors’ after-tax returns. Even when a proposal never becomes law, a shift in its odds of passing can affect asset prices.

Budget, deficit and federal debt. Congress controls spending and revenue. Expanding outlays, cutting taxes or tightening the budget all change deficit projections and the Treasury’s funding needs. Through them, they also affect bond issuance, Treasury yields and borrowing costs across the economy.

Regulation and sector policy. The balance of power also shapes legislation in energy, financials, tech, healthcare and infrastructure. Regulatory change can alter operating costs, competitive conditions and the case for long-term investment.

Divided government: a brake or a source of uncertainty?

One possible outcome is a divided government, where the president belongs to one party and the other party controls one or both chambers.

That makes sweeping economic reform harder and forces cross-party compromise. Some investors see slower legislation as a plus, since it lowers the risk of sharp swings in tax or regulatory policy. When major budget decisions are due, however, the same split can mean drawn-out negotiations, delayed appropriations and even a partial government shutdown.

Divided government is therefore neither good nor bad for markets by default. Its impact depends on the policies on the table, the need for bipartisan cooperation and how much flexibility each side shows.

What history says about stocks

The link between midterms and stock performance has been studied for decades, but correlation is not causation. According to an October 2026 BlackRock analysis:

The pattern is not proof that elections drive rallies. Interest rates, inflation, growth and corporate earnings all changed across these periods, and the number of election cycles is small. Historical returns are not a reliable basis for forecasting how markets will behave after any single election.

Do the elections affect interest rates?

The Federal Reserve sets monetary policy independently. Neither the president nor Congress decides rates at any given FOMC meeting.

Fiscal policy still matters. Decisions on taxes and spending affect demand in the economy, the government’s borrowing needs and, at times, the outlook for inflation and growth. A large fiscal expansion can support activity in the short run. In some conditions, though, it can also add to inflationary pressure or increase debt issuance, and both can move Treasury yields and market expectations for the Fed’s rate path.

The effect runs in more than one direction. It depends on where the economy is in the cycle, how spending is financed, investor expectations and the Fed’s response.

The bottom line

The midterms are first and foremost a political event, but their economic consequences can play out over years. The relevant question is less who wins than what the administration will be able to pass. Investors will be watching how the fiscal and regulatory backdrop may change, and how that feeds into corporate earnings and asset prices.

Markets are already focused on equity valuations, rates, government debt and heavy investment in tech and infrastructure, so the make-up of Congress may matter more than usual. The vote can redraw the limits of what Washington can do, but it does not change the fundamentals of the US economy overnight. Its market impact will come mainly from three things: the policies that are actually enacted, how they are funded, and the gap between results and what is already priced in.