Wall Street Watches U.S. Midterms; Democratic Sweep Could Lift Stock Volatility

As voting begins in the U.S. midterm elections, Wall Street is bracing for the possibility that stock-market volatility could rise depending on whether Democrats win.

Reuters reported on November 3 that market strategists see the election outcome as potentially having a major effect on some stocks.

Republicans currently control both the Senate and the House of Representatives, but polls show Democrats are well positioned to retake the House. The Senate remains a toss-up.

UBS Global Asset Management put the odds of Democrats taking both chambers at 50%, Democrats retaking only the House at 40%, and Republicans holding both at 10%.

Scott Chronert, Citigroup's U.S. equity strategist, said a Republican hold on the Senate would be positive for stocks. If Democrats win more Senate seats than expected, however, the market could react negatively.

If Democrats take control of Congress, oversight of the Trump administration could intensify. Fiscal negotiations could also become more difficult.

Mark Haefele, chief investment officer at UBS Global Asset Management, said the clearest effect of a shift in congressional power would be tighter oversight of the administration and tougher fiscal negotiations.

The prospect of tighter regulation of the AI industry is also being raised. In the U.S., community opposition to data-center construction has been growing recently. If Democrats win both the House and Senate, congressional investigations into AI companies could expand.