Trump lost his coalition, but don’t assume a 2028 Democratic trifecta
Matt Miller, political economist
The midterm result was an epic repudiation of Trump’s policies on tariffs and the Iran War, which voters blamed for higher gas prices and other costs. Voters also took aim at what they viewed as self-dealing and self-enrichment, along with distractions like the White House ballroom and Trump’s triumphal arch. The main takeaway for me is the ongoing volatility we are seeing from election to election. People are persistently unhappy with the status quo, which has resulted in changes in power in 10 of the last 11 elections. That’s why it would be a mistake to assume a Democratic trifecta in 2028. This election showed how quickly a party can squander the coalition that put it in power.
So what should investors expect now? We will likely see plenty of investigations of the Trump administration, including alleged pay-to-play deals. However, Democrats cannot run in 2028 on investigations alone. They will almost certainly work on a big healthcare bill, potential caps to credit card fees and increasing the federal minimum wage. The war in Iran may emerge as a point of negotiation, with Democrats agreeing to fund some of the administration’s defence priorities in exchange for concessions.
The party may also move to strip Trump of his claimed tariff authority. Tariffs on foods and materials used in housing construction, both of which have driven prices higher, may also be repealed. Republicans looking to repair their standing with voters may join to achieve a veto-proof majority on some of these issues.
AI and data centres will also be on the agenda. The cost of building AI data centres could increase, but my expectation is that the rhetoric will be charged, but common ground will be found. I’d expect Democrats to scale back federal tax incentives for new projects and ameliorate power and water consumption costs. I think the coalition behind data centres will work aggressively to repair the relationships they’ve damaged at the state level with more community outreach and local buy-ins.
In the immediate future, things will be hectic as Trump is now a lame-duck president. He will want to address the debt ceiling and boost defence spending while Republicans still control Congress. This won’t be easy to accomplish with Republicans feeling less cooperative and blaming Trump for their losses.
Looking ahead to 2028, the messy debate about to unfold ahead of the next presidential election reflects the fact that neither major political party has found a way to address Americans’ anxieties about their economic prospects in ways that permit a durable governing coalition to emerge. Until that happens, we should expect the political pendulum to keep swinging.
Healthcare in the crosshairs
Diana Wagner, equity portfolio manager
Healthcare is coming into focus as Democrats take control of Congress. With several centrists in power on the Democratic side, forthcoming bills may be more moderate and aimed at expanding the Affordable Care Act, lowering prescription drug costs and rolling back changes to Medicaid enacted under the One Big Beautiful Bill Act of 2025.
However, “Medicare for All” may also return as a talking point, particularly for progressive Democrats. It’s important to understand that we’ve been talking about Medicare for All for nearly my entire 26-year career at Capital Group, and so far, it has been more of a slogan than a policy. Still, a renewed debate around this issue could put downward pressure on healthcare stocks, including insurers, pharmaceutical companies and hospitals.
Meanwhile, fundamentals for Medicare Advantage health insurers such as UnitedHealth have been improving and are expected to remain stable, given that the pricing environment over the next couple of years is unlikely to change. That’s because the Centers for Medicare & Medicaid Services, which sets Medicare Advantage payment rates, falls under the control of the White House. Over the long run, the healthcare sector has multiple tailwinds as the aging population fuels demand for healthcare innovation. Between its accelerating GLP-1 franchise and ongoing Alzheimer’s drug trial, Eli Lilly is among the industry’s most innovative companies addressing these structural trends.
Election outcome won’t curb US government spending
Tom Hollenberg, fixed income portfolio manager
Most election outcomes have less impact on the fiscal outlook than you might expect. Even after Democrats' sweeping election gains, the president’s veto power makes any major new tax or spending legislation harder to pass. The outcome of the midterms also won't address the deficits that we're already running. That is, the government will likely continue to spend more money than it collects in revenue. And the outgoing Congress could still approve additional spending during the lame duck session before the new Congress takes office in January.
