US midterms, three scenarios for rates, equities, the dollar and gold. Trump’s foreign policy agenda set to endure

The American midterm elections on 3 November will not change the occupant of the White House, but they could profoundly alter the conditions in which Donald Trump governs the final two years of his presidency. For investors, the question concerns the scope to pass new fiscal measures, fund federal spending and manage a debt that continues to require sizeable bond issuance. The election result will influence these balances, without replacing the factors that determine investment value: economic growth, inflation, monetary policy and companies’ ability to generate profits.

On the eve of the vote, the analyses consulted give the Democrats an edge in the House, while the Senate remains more finely balanced. A Republican hold on both majorities therefore appears the less likely scenario, though it should still be considered in the analysis. It would also be a result capable of surprising markets: an expected outcome can lead to contained moves, whereas a less probable one can trigger a broader repositioning.

The starting point: rates are not set in Congress

On 28 October the Federal Reserve kept its benchmark rate in the 3.75–4% range, describing an economy still expanding and inflation as elevated. This limits the scope for reading the elections as the automatic prelude to rate cuts: the central bank will have to assess how the policies that follow the vote alter demand, employment and prices.

It is also necessary to distinguish the rate set by the Fed from Treasury yields. Short-dated maturities are particularly sensitive to expectations for monetary policy; long-dated maturities are also influenced by future inflation, the amount of debt to be absorbed and the premium investors demand to commit capital over time. Expectations for official rates could therefore fall without a corresponding decline in 30-year yields. For bondholders, the distinction is essential: when the required yield rises, the price of existing securities falls, with generally greater effects on longer durations.

First scenario: Republicans keep one chamber

The first scenario is that of a divided Congress. The most intuitive hypothesis is a Democratic House alongside a Republican Senate, but the opposite configuration would also create a significant obstacle to new legislation. To pass major changes to taxes and spending, both chambers must approve them. The difference mainly concerns appointments: a still-Republican Senate would preserve a more favourable path for Trump’s confirmations, while losing it would make that route harder.

For rates and bonds, the potentially favourable effect would stem from a lower probability of new, unfunded expansionary fiscal measures. If the market scaled back expectations for a larger deficit and higher inflation, Treasuries could benefit. But blocking new initiatives does not automatically correct existing imbalances: issuance would remain high and negotiations over government funding could become more contentious. A divided Congress could therefore ease one risk while increasing another.

For equities, a degree of legislative stability could be welcomed, because it would reduce the likelihood of radical changes to corporate taxation. Any fall in yields would also support the valuations of shares most sensitive to the cost of capital. However, companies hoping for new incentives or major spending programmes could see their prospects reduced. The benefit would therefore be selective, especially if uncertainty over federal finances were to curb orders and investment.

In the foreign exchange market, softer US yields could weaken the dollar, all else being equal with Europe and other economies. Yet greater confidence in US institutional stability could support it. For gold, lower real rates would represent a possible tailwind, while reduced political uncertainty could lessen demand for protection. There is therefore no single inevitable direction for the dollar and the precious metal.

Internationally, Trump would retain the diplomatic initiative, but he would have to negotiate with the opposition over funding for foreign aid and military commitments. Tensions with allies and rivals could therefore continue, without a divided Congress guaranteeing a more restrained foreign policy.

Second scenario: the House and Senate pass to the Democrats

Losing both majorities would be a more significant constraint on Trump, with greater scope for parliamentary oversight and a more difficult path for Senate-confirmed appointments. It would not, however, amount to a Democratic administration taking office: the president would retain the veto and the Democrats could not assume they would overcome it with a simple majority. The new Congress would also not take office until January 2027: the immediate market reaction would anticipate later institutional changes.

Democratic control could limit new Republican fiscal initiatives, without automatically repealing those already approved. Trump would also retain executive tools on trade, regulation and foreign policy, within the limits of laws and court decisions. It would therefore be excessive to conclude that a parliamentary defeat would eliminate the risk of new tariffs or the international tensions capable of influencing prices. Some of the uncertainty could simply shift from the legislative process to presidential initiatives.

For Treasuries, a lower probability of further fiscal expansion could support a decline in yields and a recovery in prices, especially at the most sensitive maturities. That outcome would, however, require investors to read the new configuration as containing fiscal risk. If, instead, disputes over appropriations, threats of a government shutdown and difficulties in managing budget deadlines came to the fore, the premium demanded on bonds could rise. A shutdown and a debt-ceiling crisis are different events, but both can fuel uncertainty.

For equities, the outcome could be positive if it reduced the risk of political surprises without undermining growth and earnings. By contrast, a persistent institutional conflict or a sense of paralysis in the face of an economic slowdown would be negative. A broad rise in corporate taxes should not be taken for granted: it would require legislation and a confrontation with the president. Greater parliamentary scrutiny, however, could increase volatility in sectors exposed to public policy decisions.

The dollar could lose ground if yield differentials in favour of the United States narrowed; it could instead strengthen during a phase of global risk aversion. For gold, the most favourable combination would be falling real yields and persistent institutional tensions. A Democratic Congress perceived as a stabilising force could, however, reduce some of the defensive demand. Even in this scenario, the direction would depend on how the result translates into concrete decisions.

Internationally, a Democratic Congress could exert greater influence over resources, diplomatic appointments and support for international partners, increasing the political cost of presidential choices. Trump would still retain significant room for manoeuvre: confrontation with Congress could encourage compromise or heighten unpredictability, with repercussions for energy, the dollar and gold.

Third scenario: Republicans retain both majorities

A Republican hold on both the House and the Senate would give Trump more favourable conditions to carry forward his legislative agenda. It would not be power without limits: narrow majorities, internal divisions and parliamentary procedures would still matter. But markets would have to reassess the chances of new fiscal measures, deregulation and sector-specific interventions, especially if they had already priced in a divided Congress or a fully Democratic one.

Equities could initially react positively to the prospect of fewer constraints and measures capable of supporting earnings. If, however, the agenda were interpreted as a source of larger deficits, inflation and higher bond yields, part of the gain could be unwound. Differences would also emerge within the stock market: what supports the earnings of some sectors can raise the costs of others, while higher rates weigh on indebted companies and more demanding valuations.

For Treasuries, new expectations of fiscal expansion could put pressure on prices, especially at the long end. The dollar might initially benefit from higher yields, but lose support if the rise reflected a deterioration in confidence in public finances. For gold, two forces would be at work in opposite directions: the possible drag from higher real rates and a stronger dollar, and the support from concerns over debt, inflation and international policy. The exchange-rate analyses consulted differ precisely on this point, showing how much the nature of the move in yields matters.

Internationally, continuity in the majorities would make it easier to secure legislative and financial support for Trump’s foreign policy, while not eliminating internal party divisions. For markets, the weight of concrete choices on China, alliances and conflicts would increase: diplomatic agreements could reduce the risk premium, while new escalations would strengthen it.

How to read the reaction after the vote

The first distinction will be between relief at the end of electoral uncertainty and a lasting change in the economic backdrop. A rise in equities in the first few sessions would not prove that the result structurally improves the outlook; it could reflect the closing of defensive positions. Similarly, an initial decline in yields should be compared with expected inflation and the fiscal risk premium, to understand whether the market is pricing in greater stability or weaker growth.

For an Italian investor, currency also matters. A Treasury can rise in dollars and deliver a less favourable result in euro if the US currency weakens. The same distinction applies to shares and gold: the return on the underlying asset and that of the exchange rate combine, while currency hedging changes the exposure and entails costs.

The decisive variable will be the credibility of the balance between growth, inflation and debt. A divided Congress could contain new initiatives without resolving the imbalances; a double Democratic victory would strengthen checks and balances, with the risk of sharper conflict; a Republican confirmation would widen the room for manoeuvre, exposing markets more fully to the consequences of the policies approved. Equities, bonds, the dollar and gold will react to the sustainability of these paths, not just to the colour of the majorities.

Scenario analysis based on information available as at 31 October 2026. The effects described are conditional and do not constitute certain forecasts.