US Midterm Election Season Kicks Off

Control of Congress hangs on a razor-thin margin, with Republicans defending a 218-214 hold on the House and a 53-47 majority in the Senate. Democrats need to flip a net of just three districts to win the House and four seats to take the Senate, making every race critical for future legislative and economic policy agendas. Historically, markets exhibit weaker performance and higher volatility in the 12 months preceding a midterm election. Analysis of S&P 500 data shows average pre-midterm returns of 2.9%, well below the historical average of 8.9%, as investors weigh policy uncertainty. However, the 12 months following a midterm have historically seen the market rebound, with average returns of 12.4%. The Texas Republican Senate primary pits incumbent John Cornyn against Attorney General Ken Paxton and Rep. Wesley Hunt in an expensive and contentious race. Polling indicates a statistical tie between Paxton and Cornyn, with a May 26 runoff between the top two finishers looking likely if no candidate secures over 50% of the vote. On the Democratic side in Texas, Rep. Jasmine Crockett and state Rep. James Talarico are the leading candidates. The primary has been marked by a surge in early voting, with Democratic turnout in Texas more than doubling compared to the last midterm cycle, outpacing the significant, but smaller, increase in Republican early voting. Key economic issues shaping the national debate include affordability, tariffs, and Federal Reserve interest rate decisions. The administration is promoting policies to lower consumer costs, while concerns about potential stagflation—high inflation combined with high unemployment—and the national debt remain central to the economic outlook. Voter turnout in midterm elections typically drops to about 40% of the eligible electorate, compared to roughly 60% in presidential years. The 2018 midterms saw a historic high of 50% turnout, and early voting data from Texas suggests voter engagement in 2026 could be unusually high.