Midterms Postmortem
The desk argues that the recent U.S. midterm elections are unlikely to impact FX markets significantly, as historic patterns suggest limited correlation between political outcomes and currency strength. Per the full note from J.P. Morgan, credit markets appear primarily influenced by underlying economic conditions rather than electoral politics, which aligns with our assessments of prevailing market dynamics. As data indicates an average S&P 500 gain of 13.7% post-midterms and only minor tightening in credit spreads, our focus remains on economic fundamentals and earnings trajectory for currency valuation. In light of this, attention to specific equity and credit signals will be critical for positioning in the months ahead.
What the desk is arguing
The desk posits that midterm election results will not meaningfully shift FX market dynamics, emphasizing that high-yield bond spreads reflect broader economic growth rather than political movements. Per the full note from J.P. Morgan, historical data shows a substantial average post-election uptick in the S&P 500, reinforcing expectations of stability in the equity markets and by extension, lesser effects on currencies.
To support this perspective, J.P. Morgan outlines that high-yield credit markets typically exhibit an average three-month total return of 2.9% following elections. This framework suggests that market positions should prioritize corporate earnings and macroeconomic indicators over political developments, indicating a more stable forecast on the USD’s positioning against other major currencies.
Where it sits in our coverage
Given our current consensus, we target 1.075 for the USD/EUR with a range between 1.04 and 1.12. Specific targets from key firms include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This positioning aligns firmly with jpmorgan, as our desk’s view is situated near the middle of the spread. Knowing that the broader consensus among peers is cautiously optimistic about post-midterm behavior supports our stance.
How other firms see it
Most firms are aligned with a neutral outlook following the midterms, anticipating stability amongst the political backdrop. Yet, some firms, like bofa, maintain a cautious stance, predicting potential retrenchments should corporate earnings disappoint.
With the current trajectory of the USD/EUR directly tied to central bank decisions and economic indicators, monitoring the Federal Reserve’s signals will be crucial. The anticipated rate path could significantly influence currency pairs ahead.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Midterm results have historically shown minimal impact on FX markets, with economic growth as a primary driver of market returns.
- 02J.P. Morgan highlights that the S&P 500 averages a 13.7% gain post-midterm elections.
- 03The desk anticipates stable credit spreads and macroeconomic conditions to dominate USD valuation.
- 04Attention should linger on corporate earnings and Fed signals rather than electoral outcomes.
Market implications
Traders should closely monitor the USD/EUR levels, particularly the confirmed resistance around 1.10 and support near 1.04. Focus on upcoming earnings reports as potential market movers, alongside any shifts in Federal Reserve communication.
Risks to this view
A significant catalyst that could invalidate this view is a surprising underperformance in corporate earnings, which could lead to broader market corrections and shift sentiment around risk assets. Additionally, any drastic political upheavals challenging the status quo might also warrant a reassessment of currency valuations.
A deep dive into what the midterms could mean for markets and more ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ View online Edition #210 In Context * How are the midterms results rippling across credit markets ? * With a divided government setting the stage for political gridlock, is the AI buildout still in play? * Discover how the Democratic sweep could reshape the broader geopolitical backdrop . * In case you missed it: Explore more implications of the midterms in the latest Eye on the Market Not a subscriber? Sign up for In Context. research The midterms matter little to credit markets J.P. Morgan Global Research sees spreads on high-yield bonds and leveraged loans as being driven more by trends in economic growth and corporate earnings than by politics, with seasonality likely to be an important factor in the coming months. explore impact BY THE NUMBERS According to a study by CNBC, the S&P 500 has historically performed well after midterms, gaining an average of 13.7%.
Since 2000, high-yield credit markets have seen an average three-month total return of 2.9% post-election, while high-grade spreads have moved 7 bps tighter. The 24-month forward price-to-earnings ratio of the MVIS U.S. Listed Semiconductor Index has halved since June, trading at around 11.4x as of November 5. private banking The blue wave is changing the AI trade Democratic gains increase the likelihood of tougher scrutiny around data center development, electricity affordability and who pays for new grid infrastructure.
This can create near-term uncertainty for sectors that trade in line with AI developments, such as utilities; on the other hand, companies with existing compute and data center projects have an edge. find out how Research & Center for geopolitics How the Democratic sweep could impact foreign policy _"We continue to expect to see a very active president on foreign policy, but Congress can throw sand in the gears, shaping the agenda by proposing legislation and hearings ... it's safe to say we're going to be in a very different policy environment in a couple of months than we have been in for the last two years."_ Derek Chollet, head of the JPMorganChase Center for Geopolitics Tune in on: Apple Podcasts | Spotify | YouTube Music In Case you Missed it Eye on the Market: Midterms are rarely market-moving events Asset and Wealth Management's Michael Cembalest explores the economic and political context around the midterm elections, how they have become an implicit referendum on AI data centers and why their market impact might be limited. Plus, he takes a closer look at how corporate fraud undermines investor confidence through the lens of the Theranos scandal. See more jpmorgan.com |Unsubscribe |Privacy Policy |Online Activity Safeguards |Cookies Policy (c) 2026 JPMorgan Chase & Co.
Sources & References
How we cover this story