By Laura Cooper, Global Investment Strategist and Head of Macroeconomic Credit at Nuveen

The US midterm elections are better viewed as a clarifying event than as a catalyst for redefining the market backdrop. Investors face bigger forces, from renewed concerns about AI to the risks posed by rising oil prices. In the week ahead, strong PMI data and a rebound in hiring could also revive an upbeat US growth narrative, prompting yet another reassessment of the Fed’s policy path.

History shows equities have little to fear from the midterms

Election-related volatility aside, markets have typically settled quickly after the vote. US equities have historically delivered solid returns over the following 12 months, except during periods of acute financial stress¹. A bumpier path for AI development could dampen enthusiasm, but the election itself is unlikely to mark a turning point for the broader market.

The backdrop is encouraging, but equities’ starting point warrants some caution, given how much of the market’s performance now hinges on the AI investment cycle. Last week’s tech earnings showed that investors are less willing to overlook rising capital spending without clearer evidence of a return. Strong earnings growth remains a key pillar of performance, but the bar for positive surprises keeps rising. Any lasting impact from the election is more likely to show up in sector divergences. Given the power needs of data centers, energy infrastructure and permitting reform could emerge as areas of bipartisan cooperation.

For bonds, the midterms should generate more noise than lasting repricing

The impact on bonds will largely depend on any shift in fiscal policy, and the room for one looks limited given already difficult debt dynamics and high borrowing costs.

History offers little evidence that midterms are a reliable guide to Treasury returns. Over the past 16 midterm elections, the 10-year Treasury yield fell by an average of more than 30 basis points in the year after the president’s party lost control of at least one chamber, compared with a rise of nearly 60 basis points when it retained control². That said, outcomes have varied widely, with broader economic conditions often outweighing politics.

With the president’s party controlling both chambers going into the vote, a divided government could reassure investors somewhat by limiting the scope for further fiscal expansion and easing pressure on the long end of the Treasury curve. Still, gridlock would do little to fix the underlying deficit problem, and heavy borrowing needs are likely to keep term premiums high – and long-term yields with them.

Economic data, not election results, will set the market’s next direction

Treasuries have more to fear from this week’s economic releases than from the election itself. Resilient US growth has coincided with sluggish hiring: third-quarter GDP grew at a 3.4% annualized rate even as job growth slowed sharply³. Renewed energy price pressures further complicate the inflation outlook. After the Fed’s hawkish hold last week, with two officials dissenting in favor of a hike, stronger jobs figures or business surveys could reinforce expectations of further tightening, particularly at the front end of the curve, fueling more rate volatility regardless of the election outcome.

Conclusion

The midterms may lift a veil of political uncertainty, but they won’t change the underlying forces shaping markets. Equities hinge on earnings delivery and the payoff from AI spending, while bonds remain more sensitive to inflation risks and persistent fiscal pressures.

Whatever voters decide this week, the election will settle very little about where markets go from here.

Sources: 1. Nuveen CIO Weekly, October 2026 ; 2. Nuveen Fixed Income team, Bloomberg, as of October 30, 2026; 3. Bloomberg, as of October 30, 2026.

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