Live Markets-The midterms and the stock market

With the Federal Reserve's hotly anticipated September meeting in the rearview mirror, strategists are now looking ahead to November's U.S. midterm elections.

Morgan Stanley's Monica Guerra laid out some expectations regarding Congress and the market in a research report.

With Republicans currently holding 220 U.S. House of Representatives seats compared with Democrats' 215, Guerra notes that this is the thinnest controlling margin since 1930. This means that Democrats need to gain just three seats on a net basis, to take control, while Republicans cannot afford to lose more than two seats.

She points out that Democrats are leading in ballot polls that just ask voters which political party they would choose currently with a margin that has widened to 8.1 percentage points while the presidential approval rating is sitting near 40%.

Meanwhile, consumer sentiment is at 47.8, which is well below the historical election-year average of 85, according to Guerra, who also highlights a 29.5% increase in the price of regular gasoline since August 2025.

"Forty-seven percent of registered voters say the cost of living will be the single most important factor in their voting decision, up from 39% in January," said Guerra.

With these concerns in mind along with a "concentration of toss-ups for GOP-held seats and the historical average 30-seat loss in the House for the sitting president’s party," Guerra sees a "difficult environment for Republicans."

However, while Republicans face meaningful risks that they will lose House control, they "should retain the Senate," the strategist said, citing the firm's base case scenario.

While Democrats need a net gain of four seats to win an outright majority in the Senate, prediction-market readings, on September 16, for Democratic control were 86% to 88% for the House and just 54% to 59% for the Senate.