JPMorgan’s four midterm scenarios: S&P 500 seen moving between -0.25% and +1.25%

The narrow ranges suggest the most likely outcome is already largely priced in, so the bigger equity moves would come from a surprise rather than the expected result. The bond market may be the more telling channel. JPMorgan links Democratic control of finances to lower deficit spending and softer long-end yields, while a Republican sweep would keep deficits elevated and yields higher. For tech, the desk plays down the risk of AI regulation under a Democratic Congress, given the presidential veto, but flags potential selling within the AI theme. For oil, a Republican sweep is seen as potentially giving Trump more room to press on with the Iran campaign, linking the vote directly to the crude risk premium. JPMorgan’s trading desk expects only modest moves in US stocks whatever the midterm result, with the most likely outcome producing the smallest reaction and the least likely the biggest gain.Summary:JPMorgan’s trading desk mapped four midterm outcomes, using Bloomberg prediction market odds as of November 1Democratic House and Senate (66%): the S&P 500 is seen moving between -0.25% and +0.5%, with slightly lower long-end yields on reduced deficit spendingDemocratic House, Republican Senate (26%): stocks seen rising 0.5% to 1%, with Democrats expected to rein in deficit spending through control of government financesRepublican House and Senate (7%): stocks seen climbing 1% to 1.25%, with long-end yields higher on continued elevated deficit spendingRepublican House, Democratic Senate (1%): stocks seen rising 0.25% to 0.75%, with budget fights and possible shutdownsThe desk said fears of AI regulation are overstated, as Trump would not sign bills limiting AI and Democrats lack a veto-proof majorityJPMorgan’s trading desk expects US stocks to move only modestly in response to Tuesday’s midterm elections. It sees the most likely outcome producing the smallest reaction and the least likely outcome the biggest gain.In a scenario map based on Bloomberg prediction market odds as of November 1, the bank’s market intelligence team assigned a 66% probability to Democrats winning both the House and the Senate. In that case, it sees the S&P 500 moving between a 0.25% decline and a 0.5% gain, with long-end Treasury yields edging lower on reduced deficit spending.The desk said investors may fear a sell-off in AI stocks on concerns over regulation under a Democratic Congress, but argued Trump would not sign legislation limiting AI and Democrats would lack a veto-proof majority. It described any dip as a potential buying opportunity for AI bulls, while flagging the risk that investors cut exposure within the AI theme. It also noted possible congressional investigations involving Trump-linked donors, including large technology companies.A split Congress, with Democrats taking the House and Republicans holding the Senate, was given 26% odds. JPMorgan sees stocks rising 0.5% to 1% in that scenario, with Democratic control of government finances expected to reduce deficit spending and possibly lower long-end yields. It said the arrangement would effectively remove impeachment risk, while gridlock would bring budget fights in 2027 that have historically had limited economic impact.A Republican sweep, at 7% odds, would deliver the strongest gain, with the S&P 500 seen climbing 1% to 1.25%. The desk said the status quo would bring no new regulatory risks but would keep deficit spending elevated, pushing long-end yields higher. It added that such an outcome could encourage Trump to continue the Iran campaign until a deal favorable to the US or an Iranian capitulation.The least likely result, a Republican House and Democratic Senate at 1%, is seen lifting stocks 0.25% to 0.75%, with budget fights and possible shutdowns.The modest ranges suggest markets have largely priced in the expected outcome, leaving a surprise result as the bigger potential catalyst.  This article was written by Eamonn Sheridan at investinglive.com.