How Trump contesting midterm election results could disrupt the market
The market is readying itself for the 2026 midterm election results Tuesday, and investors are already showing signs of caution at the prospect of a Democratic sweep. Yet there’s one scenario that investors may not be paying serious attention to at all: a contested election. Less than two weeks before Election Day, the Department of Justice sued Alaska to block the certification of the winner of a Senate election if incumbent Republican Sen. Dan Sullivan loses. The reason? Possible voter confusion at having another candidate with the same name — Daniel J. Sullivan — on the ballot. While a federal judge dismissed the DOJ lawsuit , the department said it will appeal the ruling, stirring more doubt among investors about the election outcome, since Alaska’s race is one of the key contests that will help decide control of the Senate. Meddling If President Donald Trump attempts to meddle with the outcome of the midterm elections, any instability — and potentially, lawlessness — that might result could show up in the equity and bond markets, as investors don’t appear to have priced in the risk of a contest outcome. “The midterms is really the most consequential event of the year for markets because it’ll determine whether or not we have a functioning government in the U.S.,” Olivier d’Assier, senior director of investment decision research at SimCorp, a global financial and investment management software provider, said in an interview. “If there is a blue wave, this president is not going to go quietly into that good night. He’s going to fight it.” The market has been under stress recently as concern over the size of artificial intelligence spending has intensified . High oil prices due to the Iran war have added further pressure, fueling worries about persistent inflation helped drive up Treasury yields ever since late August. Volatility could emerge if a Democratic sweep leads to President Trump to overreach, and will be made worse if an economic shock occurs at the same time. In a scenario of executive overreach alone, d’Assier forecasts a rebalancing towards assets that are not interest-rate sensitive, or towards extremely defensive areas. If a shock to the economy happens at the same time, that would bring a “huge” flight to safety. Long decision time Even if the Trump administration fast tracks cases related to the election results to the Supreme Court , d’Assier believes it could still take “quite a long time” before anything is decided. “You’re going to see a continued ask for a higher risk premium, a higher term premium on bonds, everything,” he said. Stocks historically have rallied after the midterms as any perceived uncertainty is lifted. Trump contesting the results might create a “prolonged period of uncertainty,” weighing down investor sentiment, said Ed Clissold of Ned Davis Research. The extent of the negative sentiment might depend on how much the president’s moves could alter the outcome. “Let’s say Democrats have this sweep, and they were going to get control regardless of Alaska, and that drags out for a while, the market may not care as much,” the chief U.S. strategist at Ned Davis said. While the market might struggle with the uncertainty a bit, it’s also possible the uneasiness could be held in check by optimism that litigation would be limited, or not last long. And there’s also still a chance things go relatively smoothly. “You go back to 2020, the courts took many cases on this, heard them and ruled,” said Matthew Aks, senior strategist at Evercore ISI. “I continue to have some degree of confidence in the courts when you see these sorts of actions.”
