The Democrats are on track to win the U.S. House of Representatives in 2026. For investors, that is usually just noise. Now, however, even the most committed progressive has to admit the timing is terrible. Things were going so well.
You’re not really supposed to say it out loud in New York—the city that, starting in January under its new mayor Zohran Mamdani will turn communist again—but asset managers are making money off Trump. He came to the White House for Main Street, but delivered for Wall Street. Not exactly chic, but so be it.
Corporate taxes have been cut, the SEC has been tamed, the road for crypto has been paved and pension funds will soon be allowed to load up on private investments. Even the April Liberation Day dip has been more than erased by the ongoing everything rally. Things are going great. At least for investors.
Ordinary voters are getting fed up with Trump’s economic policy. According to Fox News, nearly half of Americans now say the Chief Executive is making their lives harder. Why? Things are too expensive, especially food. That plays straight into Democratic hands. The party booked political gains in November in Virginia, New Jersey and New York City. All candidates won on the same theme: affordability.
“You can safely assume Democrats will win the midterms next year,” predicted lobbyist and K&L Gates adviser Joe Trahern this month in a presentation for fund managers and yours truly. According to him, affordability has become a “toxic” issue for Republicans, who now genuinely have to start worrying about voters’ wallets.
The White House is beginning to sense trouble. In November, Trump signed an executive order exempting, among other things, coffee, bananas and beef from his brainchild: broad trade tariffs. According to Fox News, only one-third of Americans still support them. The Supreme Court appears equally skeptical.
The odds of the Supreme Court striking down Trump’s levies are at 75 percent, according to online betting site Polymarket.com. Trahern says he has already called his bookie to place this bet. He suspects many Republicans in Congress are quietly doing the same, or at least hoping for it. “If the Supreme Court wipes out the tariffs, that could be a major political gift for Republicans,” he said. White House spokeswoman Karoline Leavitt has told the press, however, that everything will be done to preserve the tariffs, one way or another.
That is exactly where the problem for investors lies. Voters complain that inflation is biting. That makes interest-rate cuts by the Federal Reserve—the shared obsession of Trump and the market—increasingly difficult. Lower rates risk pushing prices even higher. And justifying ever-rising valuations becomes a harder sell as well.
Trump is nonetheless searching for a replacement for Fed Chair Jerome Powell, who chronically stands in the way of large rate cuts. Economist Kevin Hassett is widely seen as the frontrunner. That does not sit well with bond investors, who, according to the Financial Times, have already told the Treasury Department they don’t like Hassett because they fear he would be all too willing to cut rates to keep Donald Trump happy.
That leaves Republicans with a choice: either they leave the Fed alone on inflation, or voters hand the House back to the Democrats who promise to tackle inflation. In the latter case, Trahern says, 87-year-old Maxine Waters would also return to the helm of the House Financial Services Committee. That would bring back DEI, ESG and every other acronym that corporate America—even in Manhattan—has grown nervous about. Investor protection would return, and pro-crypto plans could be blocked or delayed.
Historically, it has mattered little for markets who controls the House. Markets have functioned just fine for decades under a divided government. At the same time, in the current environment, investors know exactly what Trump wants: less oversight, looser rules and a friendly relationship between the White House and corporate America.
Fortunately, investors do not need to worry too much. Even without the House in Republican hands, Trump can simply plow ahead. An executive order can be pushed through without the House’s consent. How convenient
Max Severijns is a journalist and lives in New York. He is a correspondent for Investment Officer. He studied communication and Japanese and earned his master’s degree in international relations at the University of Milan.