Editor's Note: As the 2026 U.S. midterm elections draw closer, political news is beginning to re-enter investors' field of view. But for the market, the more important question than tracking campaign rhetoric every day is: which signals are truly worth watching, and through what paths will they affect asset prices?
The answer from Morgan Stanley Wealth Management is a framework composed of four indicators: the Midterm Signal Monitor. They are generic congressional polling, presidential approval ratings, consumer confidence, and gasoline prices. They correspond respectively to partisan support, satisfaction with the incumbent administration, households' economic perceptions, and the most direct pressure from the cost of living. Morgan Stanley emphasizes that these indicators are better used as directional signals for judging changes in the political environment, rather than directly predicting the final congressional seat outcome.
Behind these four indicators, they actually point to the same question: how do American voters feel about the economy? Even though the inflation rate has fallen from its highs, the price levels of food, housing, healthcare, and energy are still significantly higher than a few years ago, making the cost of living an important issue in this election cycle. A Reuters/Ipsos survey also shows that the cost of living remains an issue of high concern for voters.
For investors, what ultimately needs to be observed is not a single poll itself, but whether these signals are enough to change the congressional power structure and further translate into changes in regulation, taxation, and industry policy. Morgan Stanley especially highlights the policy sensitivity of the technology and energy sectors, but at the same time believes that the business cycle, corporate fundamentals, interest rates, and the AI investment cycle may still matter more than the election itself.
The following is a translation of the original text:
As the U.S. midterm elections enter their final stage, investors need to 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 first to observe four signals.
The Midterm Signal Monitor established by its wealth management division mainly tracks: generic congressional polling, presidential approval ratings, consumer confidence, and gasoline prices.
What these four data points cover are actually several of the most critical transmission paths of the midterm elections—which party voters are more inclined to support, how they evaluate the incumbent government, how they perceive the current economy, and the most intuitive price pressure in daily life.
As of the time of publication, these indicators collectively show that the U.S. political environment is undergoing notable changes. But Morgan Stanley also emphasizes that they can only help assess the electoral environment and cannot be directly equated with a prediction of the final control of Congress.
First signal: Congressional polling, what the market really focuses on is the structure of power
The first is the generic congressional ballot, that is, a survey of general congressional voting intention that does not target specific candidates.
Unlike polls in individual districts, it usually asks voters which party they would be more inclined to support if congressional elections were held today. Therefore, this data is more like a thermometer for measuring the national political wind direction, rather than a tool for predicting specific seats.
Morgan Stanley data shows that from August to September, in the generic congressional ballot surveys it tracked, the Democratic Party's lead expanded from 6.1 percentage points to 8.1 percentage points.
For investors, the key point is not these few percentage points themselves, but whether they signal that the possibility of a change in the structure of congressional power is changing.
The reason is simple: the market does not directly trade "which party is leading." What truly affects asset prices is the ability to legislate and regulate after the election. If the president's party controls both the White House and Congress, major fiscal, tax, and regulatory agendas usually have more room to advance; conversely, if a divided government is formed, it usually becomes more difficult for large-scale policy adjustments to pass Congress.
Therefore, what is truly worth the market's attention in congressional polling is its indication of future policy space.
Second signal: Presidential approval rating, observing the "governing party pressure" in midterm elections
The second indicator is the presidential approval rating.
Midterm elections are often not only a competition among local candidates, but are also affected by voters' evaluations of the incumbent government. Therefore, the presidential approval rating can help investors observe the political environment facing the governing party.
Morgan Stanley data shows that at the time of its article's publication, the presidential approval rating it tracked was about 40%, a slight rebound from the previous 39.5%, but still within a range that historically usually means the governing party faces greater midterm election pressure.
A common misconception needs to be avoided here: a low presidential approval rating cannot mechanically lead to the conclusion that a certain party will inevitably lose a certain number of seats. What is truly useful is to put it together with congressional polling, consumer sentiment, and other indicators to see whether different signals point in the same direction.
If multiple indicators deteriorate at the same time, the market's expectations for the future congressional landscape and policy path may then undergo a more obvious adjustment.
Third Signal: Consumer Confidence—Good Economic Data Doesn't Mean Voters Feel Good
Compared with political polls, the third indicator is more directly tied to the economy: consumer confidence.
In the data cited by Morgan Stanley, consumer confidence fell from 51.7 in August to a preliminary reading of 47.8 in early September, clearly below the historical election-year average in its statistics.
The importance of this indicator lies in the fact that it helps explain an apparently contradictory phenomenon: macroeconomic data and voters' actual feelings are not always consistent. Even if the U.S. inflation rate has fallen significantly from its peak, that does not mean the price increases of the past few years have been reversed.
Falling inflation means prices are rising more slowly; a still-high price level means things have not become cheaper again. After years of cumulative increases in high-frequency expenses such as health care, food, housing, and energy, households still have to face higher daily costs. Morgan Stanley therefore believes that a core economic theme of this midterm election cycle is not simply "inflation," but the broader issue of affordability, namely the burden of living costs.
This is also why consumer confidence deserves separate observation: what it measures is not GDP or corporate profits, but how voters themselves feel about the economy. For the market, if economic growth remains stable but consumer sentiment continues to deteriorate, that means a divergence may emerge between economic fundamentals and political feedback.
Fourth Signal: Gasoline Prices—The Most Direct "Wallet Indicator"
The fourth signal may also be the most intuitive one: gasoline prices.
Energy prices differ from many macroeconomic indicators. Consumers do not need to read a CPI report; they can feel the price change every time they refuel. Morgan Stanley therefore included gasoline prices separately in its midterm election monitoring framework. Its data show that, as of the publication of the article, the year-on-year increase in regular gasoline prices had further widened.
More importantly, the impact of fuel prices does not stop at the gas station. Rising diesel and transportation costs may also further pass through to logistics, food, and other daily necessities prices. Therefore, energy prices are not only an independent indicator of living costs, but may also reinforce consumers' perception of overall prices.
This means that in the final weeks before Election Day, gasoline price trends may enter voters' perception more directly than some low-frequency macroeconomic data. But it should also be noted that energy prices are only one of many factors influencing voting behavior and cannot be used alone to infer election results.
After the Four Signals, What Investors Really Need to Watch Is Policy Risk
Putting these four indicators together, Morgan Stanley is effectively giving investors a relatively clear chain of observation: congressional polling shows partisan support → presidential approval ratings show governing pressure → consumer confidence shows economic sentiment → gasoline prices show the most direct cost-of-living pressure.
But this chain must ultimately land in the market. For investors, the most important impact of the midterm elections is not the result on voting day itself, but which policy expectations need to be repriced after the congressional power structure changes.
Morgan Stanley specifically mentioned two sectors.
One is technology. If the congressional power structure changes, some technology companies may face more scrutiny regarding competition, data privacy, and artificial intelligence. Even if no major new legislation is ultimately passed, congressional hearings and regulatory discussions could increase policy uncertainty.
The other is energy. With energy prices already having become an issue in voters' cost of living, energy companies may face more political attention related to prices, taxes, and fossil fuel policy.
The key word here is still "may."
A change in congressional control does not mean new policies will necessarily pass; an increase in regulatory discussions does not mean corporate earnings will immediately change. What investors really need to watch is whether political changes can move from campaign issues into the legislative and regulatory process.
One final signal: don't let the election overshadow the variables that truly determine U.S. stocks
Morgan Stanley's final reminder is instead not to overtrade the midterm elections.
Historically, divided government does not necessarily mean worse stock market performance. The institution's historical statistics show that in samples during Republican presidencies, in the year after midterm elections, if Congress was controlled separately by the two parties, the S&P 500 recorded a relatively high historical average return. One explanation Morgan Stanley offers is that political gridlock may reduce the probability of sudden major policy changes.
But historical average performance cannot be used to predict market returns after this election.
Therefore, as the midterm elections approach, investors can focus on four signals: congressional polling, presidential approval ratings, consumer confidence, and gasoline prices. Among them, the first two help determine whether the political landscape is changing, while the latter two help determine whether cost-of-living pressure is continuing to affect voter sentiment.
What truly needs to be confirmed is the next step: whether these signals will ultimately translate into changes in the congressional power structure, and whether the new congressional structure can further change tax, regulatory, and industry policies.
Before that, the midterm elections are better viewed as a policy risk variable rather than an independent market direction indicator. As Morgan Stanley emphasizes, the business cycle, corporate fundamentals, inflation, interest rates, and the AI investment cycle may still be more important factors influencing market performance.
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