Four Signals Investors Should Watch as Midterm Elections Approach

Original Title: The Midterm Election Signals Investors Should Watch
Original Author: Monica Guerra, Morgan Stanley Wealth Management

Editor’s Note: As the 2026 U.S. midterm elections draw closer, political news is re-entering the investor's radar. However, for the market, the more important question than tracking campaign rhetoric daily is: which signals are truly worth paying attention to, and how will they impact asset prices?

Morgan Stanley Wealth Management provides an answer in the form of a framework called the Midterm Signal Monitor, consisting of four indicators: general congressional voting intentions, presidential approval ratings, consumer confidence, and gasoline prices. These correspond to party support, satisfaction with the administration, residents' economic perceptions, and the most direct pressure of living costs. Morgan Stanley emphasizes that these indicators are better suited for assessing directional signals of political environment changes rather than directly predicting final congressional seats.

These four indicators point to the same underlying question: how American voters feel about the economy. Even though inflation has receded from its peak, the price levels of food, housing, healthcare, and energy remain significantly higher than a few years ago, making the cost of living a key issue in this election cycle. A Reuters/Ipsos survey also shows that the cost of living remains a major concern for voters.

For investors, the ultimate focus should not be on a single poll but rather on whether these signals are sufficient to alter the congressional power structure and further translate into changes in regulation, taxation, and industry policies. Morgan Stanley particularly highlights the policy sensitivity of the technology and energy sectors, while also noting that the business cycle, corporate fundamentals, interest rates, and AI investment cycles may still be more important than the elections themselves.

The following is a translation of the original text:

As the U.S. midterm elections enter their final phase, investors face a familiar question: to what extent should politics enter market pricing?

Morgan Stanley's answer is not to predict who will ultimately control Congress but to first observe four signals.

The Midterm Signal Monitor established by its wealth management division primarily tracks: general congressional voting intentions, presidential approval ratings, consumer confidence, and gasoline prices.

These four data points actually cover the most critical transmission paths of the midterm elections—voter preferences for party support, evaluations of the current government, perceptions of the current economy, and the most intuitive price pressures in daily life.

As of the article's publication, these indicators collectively show that the U.S. political environment is undergoing significant changes. However, Morgan Stanley also emphasizes that they can only help assess the electoral environment and cannot be directly equated with predictions of final congressional control.

First Signal: Congressional Polls, What the Market Really Cares About is Power Structure

The first item is the generic congressional ballot, which is a survey of voting intentions not directed at specific candidates.

Unlike single-district polls, it typically asks voters which party they would be more inclined to support if elections were held today. Therefore, this data serves more as a thermometer for measuring national political trends rather than a specific seat prediction tool.

Morgan Stanley's data shows that from August to September, the Democratic Party's lead in the tracked congressional voting intentions expanded from 6.1 percentage points to 8.1 percentage points.

For investors, the focus is not on these few percentage points themselves but on whether they indicate a changing likelihood of shifts in congressional power structure.

The reason is simple: the market does not directly trade on which party is leading; what truly affects asset prices is the legislative and regulatory capabilities after the elections. If the president's party also controls Congress, significant fiscal, tax, and regulatory agendas usually have more room for advancement; conversely, if a divided government forms, the difficulty of passing large-scale policy adjustments through Congress typically increases.

Thus, what congressional polls are truly worth the market's attention is their indication of future policy space.

Second Signal: Presidential Approval Ratings, Observing the “Pressure on the Governing Party” in Midterm Elections

The second indicator is the presidential approval rating.

Midterm elections are often influenced not only by local candidates' competition but also by voters' evaluations of the current government. Therefore, presidential approval ratings can help investors observe the political environment faced by the governing party.

Morgan Stanley's data shows that at the time of publication, the tracked presidential approval rating was about 40%, slightly up from the previous 39.5%, but still within a historical range that typically indicates significant midterm election pressure on the governing party.

Here, it is important to avoid a common misconception: low presidential approval ratings do not mechanically imply that a party will inevitably lose a certain number of seats. What is truly useful is to consider it alongside congressional polls, consumer sentiment, and other indicators to see if different signals point in the same direction.

If multiple indicators deteriorate simultaneously, the market's expectations for future congressional dynamics and policy paths may undergo more significant adjustments.

Third Signal: Consumer Confidence, Good Economic Data Does Not Equate to Voter Satisfaction

Compared to political polls, the third indicator is more directly linked to the economy: consumer confidence.

Morgan Stanley cites data showing that consumer confidence fell from 51.7 in August to an early September value of 47.8, significantly below its historical average for election years.

The importance of this indicator lies in its ability to explain a seemingly contradictory phenomenon: macroeconomic data does not always align with voters' actual feelings. Even if the U.S. inflation rate has significantly decreased from its peak, it does not mean that the price increases of the past few years have been reversed.

A decrease in inflation indicates that prices are rising more slowly; a high price level means that things have not become cheaper again. After years of cumulative increases in high-frequency expenditures like healthcare, food, housing, and energy, households still face higher daily expenses. Therefore, Morgan Stanley believes that a core economic theme of this midterm election is not merely “inflation,” but a broader concept of affordability.

This is also why consumer confidence is worth observing separately: it measures not GDP or corporate profits, but how voters themselves perceive the economy. For the market, if economic growth remains stable but consumer sentiment continues to deteriorate, it suggests a potential divergence between economic fundamentals and political feedback.

Fourth Signal: Gasoline Prices, the Most Direct “Wallet Indicator”

The fourth signal may also be the most intuitive: gasoline prices.

Energy prices differ from many macro indicators. Consumers do not need to read CPI reports; they can feel price changes every time they fill up their tanks. Therefore, Morgan Stanley includes gasoline prices separately in its midterm election monitoring framework. Its data shows that as of the article's publication, the year-on-year increase in regular gasoline prices has further widened.

More importantly, the impact of fuel prices does not stop at the gas station. Rising diesel and transportation costs may further transmit to logistics, food, and other daily goods prices. Thus, energy prices serve as both an independent living cost indicator and may reinforce consumers' perceptions of overall prices.

This means that in the final weeks leading up to the election, gasoline price trends may be more directly perceived by voters than some low-frequency macro data. However, it is also important to note that energy prices are just one of many factors influencing voting behavior and cannot be used alone to derive election outcomes.

After Four Signals, What Investors Really Need to Watch is Policy Risk

Putting these four indicators together, Morgan Stanley actually provides investors with a relatively clear observation chain: congressional polls indicate party support → presidential approval ratings indicate governing pressure → consumer confidence indicates economic perception → gasoline prices indicate the most direct pressure of living costs.

But this chain ultimately needs to translate into the market. For investors, the most important impact of the midterm elections is not the results on election day itself but rather which policy expectations need to be repriced after changes in the congressional power structure.

Morgan Stanley particularly mentions two sectors.

One is technology. If the congressional power structure changes, some tech companies may face more scrutiny regarding competition, data privacy, and artificial intelligence. Even if no significant new legislation is ultimately formed, congressional hearings and regulatory discussions may increase policy uncertainty.

The other is energy. With energy prices becoming a key issue in voters' living costs, energy companies may face more political scrutiny related to prices, taxes, and fossil fuel policies.

The key word here remains “possible.”

Changes in congressional control do not necessarily mean that new policies will be passed; increased regulatory discussions do not mean that corporate profits will change immediately. What investors truly need to observe is whether political changes can transition from campaign issues into legislative and regulatory processes.

Final Signal: Don’t Let Elections Overshadow the Variables that Truly Determine U.S. Stocks

Morgan Stanley's final reminder is not to overtrade the midterm elections.

Historically, a divided government does not necessarily mean worse stock market performance. The institution's historical statistics show that in samples during Republican presidencies, the year following midterm elections, if Congress is controlled by both parties, the S&P 500 has recorded higher historical average returns. One explanation provided by Morgan Stanley is that political gridlock may reduce the probability of sudden major policy changes.

However, historical average performance cannot be used to predict market returns after this election.

Therefore, as the midterm elections approach, investors should focus on observing four signals: congressional polls, presidential approval ratings, consumer confidence, and gasoline prices. Among these, the first two help assess whether the political landscape is changing, while the latter two help gauge whether cost-of-living pressures continue to affect voter sentiment.

What truly needs confirmation is the next step: whether these signals will ultimately translate into changes in congressional power structure and whether the new congressional structure can further alter taxation, regulation, and industry policies.

Before that, the midterm elections are better viewed as a variable of policy risk rather than an independent market directional indicator. As Morgan Stanley emphasizes, the business cycle, corporate fundamentals, inflation, interest rates, and AI investment cycles may still be more important factors influencing market performance.

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