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2026 midterms: Markets and policy · UBS Trending

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While most investors remain broadly optimistic about the economy,
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the financial markets and their own portfolios,
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concerns about inflation, government debt, taxes
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and geopolitical tensions are shaping their financial decision
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financial decision-making.
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That's just some of what we learned from our latest Investor
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Watch survey.
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We talked to more than 1000 investors,
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500 business owners all across the US,
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and we'll be sharing what we learned right now
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on UBS trending.
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Welcome to UBS trending.
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I'm Bill Carroll, UBS Head of High Net Worth
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Strategy for Global Wealth Management in the U.S.
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And I'm excited today
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to have two experts here in the studio with me.
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First, Kurt Reiman, Head of Fixed income from our UBS
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Chief Investment Office, and Shane Lieberman,
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Senior Advisor in our Government Affairs team in Washington, DC.
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So welcome to both of you.
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And we're going to jump right in.
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I'm thrilled you guys are here today.
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I think it's a great topic.
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So Kurt and Shane, as you both know, we recently
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surveyed investors and business owners.
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We want to understand
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how they're feeling ahead of the midterm elections in November.
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So, of the investors, we surveyed 88%.
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Huge majority say the economy is number
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one on their minds this coming election.
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At the same time, 64%
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are highly optimistic
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about the US economy over the next 12 months.
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Yet concerns around inflation, government debt and taxes
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remain top of mind and continue
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to shape investors decision-making
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when it comes to which party they believe is better positioned
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to handle the economy.
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Investors are almost split down the middle between
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Democrats and Republicans.
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So, Shane, I'm going to start with you.
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What do you make of that dynamic?
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We have strong economic optimism
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alongside continued concerns.
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We have a really close divide over
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which party investors think can best manage the economy.
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What do we make of all this?
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Well, I think it reflects a few things.
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You know, start off with,
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investors seeing their balances, probably,
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at record highs or close to record highs,
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but there's unease in the economy.
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There are a number of issues,
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like, tariffs, the war,
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that bring about that are easing the economy.
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And I think those numbers reflect that.
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Our country is narrowly divided.
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We are
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both sides,
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are strong, have strong beliefs and are firm in their views.
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But also, we get our news
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from sources that are tailored, for our views
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and reinforce those views and continue to further
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divide us as a country when it comes to, politics.
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You know, it's really interesting.
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I mean, think about what we said before.
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We found that among business owners, 54%
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believe Republicans are better equipped to address the economy,
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and 46% say Democrats are.
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So with that
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background, Shane,
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what specific economic policies do you think voters
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are most concerned about in this election?
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I think cost of living is top of mind for voters.
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Some may, use
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the word affordability as as kind of a catch all umbrella,
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but it comes down to a few topical issues.
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You know, President Trump's trade and tariff policies.
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Some voters see that as increasing their prices,
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when they go to the grocery store and other places.
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Another one is the Iran war,
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which voters, when they go to the pump, will,
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see the Iran war as an increase in gas prices.
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And so they see that, you know, the country's spending,
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nearly $100 billion on the war, of their tax dollars.
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And then they have to pay higher, prices at the pump.
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It doesn't sit well with them.
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And finally, I would add in data centers.
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You know, while this is kind of a mixed issue about is it
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or is it not actually increasing electricity prices
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for consumers?
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Most consumers believe it is.
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And so perception may be reality.
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And so these three I think
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are pretty topical in that cost of living
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have a category right now.
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For voters.
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Shane, sounds like the way you describe that.
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It's a perfect opportunity
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based on the division between Republicans and Democrats
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for me to launch as an independent, what do you think?
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You know, I'm all on board for that Bill.
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All right. I've got one vote.
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So, Kurt, your team is just terrific in helping advisors
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and clients keep up to date on potential election scenarios
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and the CIO views related to policy implications.
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Election outcomes.
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The CIO Election Watch 2026
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series has been a phenomenal eight clients in phase.
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So based on your research, what can you tell us about
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how markets typically behave around these midterms?
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There's no real predictable,
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trend in either stocks or bonds around the midterms,
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but there are some observable averages that,
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looking back, data
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in the stock market that goes back over a century.
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So we have 25 examples of midterm elections over that past
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hundred years.
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And the bond market since the 1970s, starting with stocks,
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they tend to, perform less well
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in the second year of a presidential election cycle.
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And they also tend to trend sideways in the months
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leading up to the midterm,
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after which they tend to rise into the third year,
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which is actually the one of the best years
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of a presidential election cycle.
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We haven't exactly seen that play out this year.
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The stock market's up over 10%.
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But within the market where you see a large share of the S&P
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500 is down for the year and is being led by AI,
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may be telling us that it is fitting the historical pattern
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in the bond market.
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What you have is something altogether
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different than the stock market.
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What you have is yields tend to rise coming into the midterm.
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Oh, by the way, that's exactly what we're seeing this year.
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And volatility jumps also a similar echo to the past.
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I wouldn't necessarily use
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these as as measures for determining how to allocate a portfolio.
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These are almost just kind of interesting anecdotes
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because really what matters for markets
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is what's happening in the fundamentals.
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So where are earnings growth or is earnings growth headed.
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The picture on inflation and the economy Fed policy.
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Those tend to matter more to us.
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But also when you think about the election outcome this year,
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where we think it's moving
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from united government to divided government,
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that sets us up for a couple of years
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where there's going to be more policy paralysis as opposed to
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really big, sweeping legislative changes
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that could affect the fundamentals.
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So, I would say, yeah, here,
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some interesting observable historical trends and many
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of them are echoing today.
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But we want to
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we still want to advise our clients to stay focused
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on the fundamentals.
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And definitely, when there's that, tendency
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to want to think about going to cash if your party doesn't win.
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That that is one thing that we would want to push against.
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Also.
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You know, as you mentioned, so valuable for our clients
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to lean on the financial advisors for advice and guidance
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at a time like this.
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And I hope you're right about the third year
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Republican or Democrat, I think we'd all like to see a good third
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year of returns in the presidential year.
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Okay, building on that.
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So let's get back to the Investor Watch survey.
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It shows that inflation concerns
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have more than doubled since the 2020 midterm,
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with 57% of investors highly worried
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versus 25% in 2020.
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So rather than waiting for certainty,
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we know that nine out of ten investors are considering
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making portfolio changes before the election.
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Now, given that, how should investors
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be preparing for what they consider
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and how they position their portfolios for what lies ahead?
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Yeah, you know, getting back to the point that Shane
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made about cost of living being at the top issue
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facing voters, it's
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no surprise
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that inflation concerns are also at the top of the poll.
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And this idea that so many investors,
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because 90% are looking, to make changes in their portfolio
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before the election,
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I wonder if that has more to do
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with just the current state of affairs in the global economy
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and all the changes that we've seen.
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The massive back up in bond yields,
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inflation is still above target.
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A lot of geopolitical concerns, especially around the Iran war.
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That's keeping oil prices elevated.
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Fed policy
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from the beginning of the year
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moved from expectations of rate cuts to now
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looking for not just a few rate cuts, rate hikes,
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but maybe even more than that.
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So there's a lot going on that could
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lead to investors wanting to make changes.
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And it may even be a good time.
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What we would want to maybe
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caution against is making changes just because it's an election
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that's coming,
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but rather
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thinking about some of the opportunities that may have emerged
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or where you could protect your portfolio from risk.
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Now, what I look and find in the bond market
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that's really quite exciting is, you know, we're talking about 5%
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yields, around the five year part of the curve.
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So you don't have to take a lot of interest rate risk
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to get a portfolio that if you then blend in
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some credit risk with investment grade corporates, you're
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building a portfolio that's getting you 6% income.
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When can we look back in the last ten years and say
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we had this type of an opportunity.
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So we're
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and it also gives you a little bit of ballast in the portfolio.
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Now on the stock side of the ledger.
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Yeah I think there are some renewed concerns about growth
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because the Fed is raising interest rates
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and oil prices are high
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and investors are worried about the economy.
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But what's been driving the stock market.
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It's been mostly AI investment.
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And that investment to us seems pretty secure.
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And the earnings forecasts coming into next year, which
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although they may decelerate,
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they're still at a pretty healthy level.
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And you know, multiples haven't gotten more expensive.
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They have contracted.
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So we find some good opportunities in the stock market as well
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that just means reverting to cash.
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Now, even though cash yields have risen with the Fed,
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raising rates isn't the it shouldn't be the reflex.
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Reaction coming into an election
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where people may be concerned that,
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you know, everything has changed.
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You know, the the result in Congress is different.
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Therefore, I need to, you know, batten down the hatches.
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I think, you know, still, we want to focus on the fundamentals
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and, and look for opportunities, not take,
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you know, not be heroic. Yeah.
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I mean, like, in the bond market. Sure.
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You can get a little bit higher
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yield by going out the yield curve, but we don't need to do that.
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So you know, singles and doubles can win ballgames.
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And I think that's, that's where we are here,
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in our investing, preferences.
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You know, you make such a great point about clients
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needing to rely on their financial plan
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and not doing things, not having knee jerk reactions
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and doing things that maybe they shouldn't.
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Sometimes the best thing to do
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is nothing, right, as we've learned. Yeah.
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So Shane, let's talk about again, everything seems to focus
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at least attention from the investor on the upcoming election.
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If the balance of power shifts in either the House or the Senate,
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what specific policy priorities do you think
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have the biggest impact?
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I think the biggest impact will be on two issues.
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One, federal spending to the debt ceiling for federal spending.
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You know, Republicans have increased spending for defense
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the past few years, but have held, the line
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on other areas of social spending,
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spending in things like highways, etc..
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So I think Democrats would use their leverage,
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to say
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to President Trump and Republicans,
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if you want to keep increasing, defense spending,
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we need,
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equal amounts of increases in other social, domestic spending.
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So that would be, I think, number one.
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Number two is the debt ceiling.
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The debt ceiling, needs to be increased.
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If it's not, it'd be cataclysmic for the markets.
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And so Congress has always increased the debt ceiling.
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But what we've seen in the past few go-arounds is,
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you know, when, President Biden was in office,
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Republicans were able to extract,
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demands in, in order to, agree to increasing the debt ceiling.
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And I think Democrats,
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if they control either House and/or Senate,
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they would have demands, President Trump
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to increase the debt ceiling.
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And they would use this leverage, to
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to bring out some policy changes, whether that be, reversing
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the Medicaid, cuts from the, one
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big, beautiful bill or other spending.
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They will not miss this, opportunity.
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Terrific perspective.
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Shane, thank you so much.
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And I think, folks, great conversation.
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We're going to leave it here.
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Thank you,
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Kurt, Shane, for offering your political and macro views
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on the investor
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and business owner surveys related to the midterm elections.
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Terrific insight.
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And for more insight, please read the detailed investor
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watch surveys at ubs.com/investorwatch
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and also visit ubs.com/electionwatch
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watch for the latest CIO research on the midterms.
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Also follow us UBS Trending on Instagram at
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@ubstrending.
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And as always, if you have any questions about your portfolio
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or anything we discussed today or any financial matters,
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please speak with your trusted financial advisor.
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Have a great day everyone, and remember,
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keep your eyes on what's trending.