Bank of America strategist Michael Hartnett suggests that the November 2026 midterm elections could significantly impact US equity markets. His analysis outlines two distinct scenarios based on the political outcome, with a particular focus on the artificial intelligence sector and infrastructure policy.
In the first scenario, a Democratic sweep of both chambers of Congress combined with a Democratic victory in the Texas gubernatorial race could lead to a decline in US equities of more than 10%. This outcome may also pressure the dollar and Treasury yields, while increasing regulatory and tax risks for AI-focused companies.
Conversely, if Republicans retain control of the Senate and Texas Governor Greg Abbott is re-elected, Hartnett anticipates a potential rally in equities. This environment could benefit AI-related stocks, potentially leading to a bubble phase in 2027.
The research notes that capital expenditure in AI is expected to exceed $1 trillion by 2027. On the prediction market Polymarket, the probability of a Democratic sweep reached 50% by early September 2026.
Despite these political projections, BofA historical data indicates that S&P 500 returns have historically correlated more closely with corporate earnings growth than with political party control. Since 1936, 68% of positive S&P 500 years were linked to rising earnings per share.
