7 political trends investors should watch in 2026

As the U.S. midterm elections approach, 2026 is set to bring notable shifts in U.S. government policy that could affect both the economy and financial markets. Here are some of the top policy and regulatory actions to watch for, along with what it may mean for your investment portfolio. 

Republican control of Congress is looking vulnerable ahead of the 2026 midterms, and affordability has emerged as a central campaign issue. In response, the administration is rolling out targeted measures meant to lower mortgage rates, preserve housing for families, reduce prescription drug costs and cap credit card interest rates to help ease consumers’ financial burdens.

Investor implications: While these initiatives could reduce costs for the consumer, they could also create market risks. Certain financial institutions and pharmaceutical companies, for example, would likely face challenges.

The U.S.’s removal of President Nicolas Maduro in oil-rich Venezuela was a powerful demonstration of how the U.S. is actively asserting its economic and military power across the multipolar world amid broader competition for resources and geopolitical influence.

The U.S. is also pursuing a range of policy actions to reduce its reliance on China for rare earths, a strategic imperative tied directly to national defense and technological autonomy. The U.S.’s focus will likely continue to shift across global regions—from Latin America and the Middle East, to Russia-Ukraine, the Indo-Pacific and evolving U.S.-EU relations.

Investor implications: We expect U.S. defense spending to stay robust, likely supporting defense stock performance. Defense “prime contractors” should continue to benefit, along with companies specializing in drones, satellite technologies and missile defense systems.

The economic benefits of tax cuts and other business-friendly provisions of the One Big Beautiful Bill Act (OBBBA) are likely to peak in 2026 before dwindling in subsequent years. For individual taxpayers, the legislation is forecast to provide about $160 billion in consumer deductions and credits in the 2026 tax year, potentially increasing total tax refunds by 44% year-over-year.

Investor implications: The pending refund windfall is likely to help ease pressure on consumers and support spending, potentially bolstering consumer staples stocks, as tax savings are typically used to buy necessities and pay down existing debt.

The U.S. central bank faces a host of challenges, including political pressure from the White House advocating for lower interest rates and questioning its independence. The administration’s push could lead to not only lower short-term rates, but also a restructuring of the Fed’s leadership.

This is all occurring as high U.S. government debt and deficits are straining the central bank’s ability to implement monetary policy effectively. In addition, if the new Fed chair appointed to succeed Jerome Powell in May is inclined to cut rates, inflation risks could increase.

Investor implications:

• If there is major organizational change at the Fed, investors should brace for interim bond market volatility.
• Challenges at the Fed stoke uncertainty in markets. Given all this, we expect a weaker U.S. dollar, a steepening yield curve and higher “term premiums”—the extra yield long-term bond investors demand to compensate for future policy-related uncertainty.  

The GENIUS Act, signed into law in July 2025, establishes a regulatory framework for stablecoins—cryptocurrencies pegged to fiat currencies or high-quality collateral, typically the U.S. dollar and U.S. Treasuries. Next up for debate in Congress: the CLARITY Act, which seeks to regulate stablecoins, clarify crypto asset treatment and define regulatory roles.

Investor implications: Because stablecoin issuers are required to hold high-quality liquid assets to back their tokens, the rise of stablecoins and digital assets could boost demand for “safe haven” U.S. Treasuries and the dollar, potentially lowering government borrowing costs while shoring up the greenback’s role in global finance.

The health care sector is poised for recovery as policy uncertainties diminish. While the recent Affordable Care Act (ACA) subsidy expiration has caused insurance premiums to skyrocket for millions of Americans, reinstatement of these subsidies is still a possibility ahead of midterm elections, which may benefit insurers participating on ACA exchanges.

Investor implications:

• Greater policy clarity with an improving macro backdrop should benefit insurance and biotech companies, with lower rates and looser regulations likely supporting mergers and acquisitions.
• Corporate tax cuts under OBBBA could also benefit biotech and medtech firms by allowing them to claim R&D tax benefits, among others.
• Health care has typically been the best-performing sector in midterm election years. Given the recent tailwinds, these stocks may still have room to run in 2026. 

Two main trade items remain on the policy agenda in 2026:

• First, trade policy uncertainty persists into 2026 with the Supreme Court’s decision looming on the legality of President Trump’s use of the International Emergency Economic Powers Act (IEEPA) to implement tariffs. Regardless of the outcome, the Trump administration has considerable recourse to impose tariffs by invoking alternative sections of U.S. trade law.
• Meanwhile, the renegotiation of the United States-Mexico-Canada Agreement (USMCA) expected this summer may lead to tighter trade restrictions on China and closer North American alignment in an increasingly deglobalizing world.

Investor implications:

• Markets may see short-term relief if the Supreme Court strikes down Trump’s IEEPA tariffs, though the prospect of further tariffs could also increase volatility.
• Headline-driven risk around the USMCA between now and the renegotiation is likely. However, a reaffirmation of trade relations with the U.S.’s two largest trading partners would provide some clarity for investors and potentially boost investments tied to the “near-shoring” theme, in which companies relocating production or supply chains closer to home markets stand to benefit.

CRC# 5199179  02/2026