Markets live with two kinds of risk. Known unknowns such as elections, earnings and Federal Reserve (Fed) meetings. And then there are the unknown unknowns, and we’ve had plenty of these lately, thanks to geopolitical conflicts driving up inflation, tariff flipflopping and rogue AI agents.

The US midterm elections on 3 November are one of the biggest known unknowns left this year. But do markets currently have the bandwidth to care about the election implications amid rising oil prices, surging government bond yields and the ever-evolving AI story?

At the time of writing, Polymarket places a Democrat sweep, meaning they take both the House and the Senate, at 66%, up from 50% at the start of September. The Democrats only taking the House is predicted at 27% and a Republican sweep at 8% (due to rounding, Polymarket odds don't always add up to a straightforward 100%). A Democratic Senate with a Republican House is seen as vanishingly unlikely. 

That said, Polymarket had put the chance of a Lula win in Brazil’s presidential election at 16.5% a day before he won. It also gave Serbia’s Student List protest party only a 38.5% chance of winning Sunday’s snap election. With the midterms just a week away, we can’t afford to discount any outcome.

Crunching our own data, using options and investment bank election baskets, suggests markets care about the outcome in the US midterms as much as they usually do – basically a slightly busier day in the office. Other insights include that a Democratic sweep is seen as good for healthcare services but could be painful for capital markets. The biggest risk is that the result may take a few weeks to settle, however, it appears that the options market has not priced that scenario. In the unlikely event of unrest, markets may be less able to shrug it off than they were on 6 January 2021.

Just a normal day

Options, which investors can use to protect against sharp price moves, show how much extra volatility (the size of price swings) markets expect after the vote. We calculated that S&P 500 options price 1.2 times a typical day’s volatility for 4 November, the day after the vote. That means swings could be about a fifth larger than usual, broadly in line with recent midterms (Figure 1).

A midterm is priced for roughly half the single-day volatility of a presidential election, and currency markets show broadly the same pattern. Tech earnings, US inflation data and the next Fed meeting are priced for slightly less extra volatility.

Figure 1: How many “normal” days’ volatility does an election day equal?

Source: Man Group calculations, based on S&P 500 options data from Bloomberg, as of 22 October 2026. Comparison is eight business days prior to results for each election.

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So, the market is pricing the midterms as a largely ordinary event, on the assumption that the result is known on 4 November. That assumption carries a risk, though. Control of a chamber can hinge on a handful of close races that in the past have taken weeks to resolve, and the options market shows few signs of accounting for this.

Democrats good for healthcare and retail

What do the outcomes mean for different sectors of the economy? Investment banks have built baskets of stocks around each outcome, pairing the likely winners with the likely losers. We ran these baskets through a factor model, which shows that much of the risk sits in sector tilts, with few large bets on single stocks. Over the past month, these baskets have followed their party’s Polymarket odds, amid a lot of other market noise.

A Democrat sweep basket appears relatively defensive, favouring stocks that tend to move less than the market. Healthcare services are seen as the biggest winners, on the assumption that further cuts to Medicaid, the US health insurance for low earners, would be avoided. The retail sector shows the second-biggest gain. On the other hand, the scenario looks potentially painful for capital markets, which covers investment banks and brokers. A Republican sweep basket is broadly a mirror image.

Figure 2: Industry weights in the Democrat and Republican baskets (percentage points, long side minus short side)

Source: Man Group data using JP Morgan election equity baskets, Bloomberg, MSCI Barra as at 22 October.

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We found some interesting changes in this year’s baskets. There are no large semiconductor bets, unlike in the run up to the 2024 presidential elections. Chipmakers sit at the heart of the AI boom, so their absence suggests that AI developments are, in some sense, a bigger force on markets than politics right now. Banks are another notable omission, though the baskets’ exposure to capital markets indicates that investors expect a Democrat sweep to limit any tailwind from deregulation.

When the count drags on

The pricing above assumes the result will be known by the following day. Control of a chamber can hinge on a handful of close races that take days or weeks to call. In 2022, it took until December to know the final make-up of the Senate. In 2020, Senate control was not settled until the Georgia runoffs on 5 January 2021, two months after election day.

Any volatility from the uncertainty about the control of a chamber and added gridlock caused by recounts and legal challenges would come on top of the modest swing priced for 4 November.

The cushion may also be thinner than it was. Markets mostly looked through the events at the Capitol on 6 January 2021, with only a minor reversal of what had been a strong trading day, but that was in an environment of COVID vaccine optimism and zero interest rates.

Today, with government borrowing costs at levels not seen in many years and AI jitters running high, it is unclear whether markets would have the same capacity to look through such a shock, in the unlikely event that a contested count escalated.

All data Bloomberg, unless otherwise stated.

Author: Adam Keogh, Quantitative Researcher, Systematic, at Man Group.

Note to our readers: Next week's Views from the Floor will come out a day or two later as we will bring you our take on the US midterms outcome as soon as we have the results.