Republicans Lose The Midterms: What’s Next?

The defeat is decisive: Republicans have suffered heavy losses in both chambers of Congress – the House of Representatives and the Senate – as well as in several of their traditional strongholds (Texas, South Carolina, Kansas, and elsewhere).

What does this mean for the president in institutional terms?

• Trump will be able to use his veto power to block legislation passed by the Democratic majority that he opposes. However, the two sides will have to find common ground, because Congress controls the purse strings: the president will no longer be able to secure new tax cuts or increase the defense budget without congressional approval. Everything will have to be negotiated.

• He will retain the ability to govern through executive orders, which allow him to amend regulations, as he did with tariffs on February 1, 2025. He could use them in areas such as energy and immigration. However, executive orders cannot create new budgets or override laws passed by Congress, which considerably limits their scope.

• His room for manoeuvre will remain substantial in foreign and defense policy. He will be able to negotiate treaties, although ratification requires the approval of two-thirds of the Senate, and decide on certain military operations abroad. Subject to legal and budgetary constraints, nothing would therefore prevent him from continuing the bombing campaign against Iran.

• His power to appoint officials, however, will be curtailed, since many senior appointments require Senate confirmation. Nor will he be able to prevent the Democratic majority from launching congressional investigations into his administration or personal affairs. Finally, the House of Representatives could initiate another impeachment proceeding, although removing him from office would require a two-thirds majority in the Senate – a far harder threshold to reach.

In short, political gridlock could take hold in Washington. And before long, all eyes will turn to the next presidential election in 2028.

What might this mean for the economy, which is our main concern here?

Clearly, voters have punished Donald Trump over the cost of living, which has failed to improve despite solid economic growth, largely due to inflation. Price pressures have been exacerbated by the tariffs introduced in 2025 and, above all, by the rise in oil prices to around $100 a barrel since the start of the war with Iran. The Iranian regime has held out, entrenched in its fortified underground facilities, and has successfully used the Strait of Hormuz as a weapon to disrupt part of international trade, driving up prices not only for crude oil but also for fertilizers and other petrochemical products. As a result, prices are soaring on Walmart (WMT)'s shelves, and Americans are not happy about it.

Inflation is likely to remain the main concern in the months ahead. Will Trump continue the war in Iran or call it off? That is the key question. A complete end to hostilities could ease pressure on the oil market, but would Tehran and other producers really have an incentive to bring prices down? Not necessarily. Having grown accustomed to these high prices and to the leverage that comes from controlling the flow of oil, it is hard to imagine a quick return to $60 a barrel, the level seen just before the conflict.

Another factor to consider is that the budget deficit and the rapid accumulation of public debt are likely to continue, and may even accelerate. Major spending cuts will be difficult to implement with a presidential election approaching. And with the White House and Congress controlled by opposing parties, there is little reason to expect any significant progress on this front.

In our view, high oil prices and debt-funded government spending will therefore continue to fuel inflationary pressures. In the long run, this should benefit scarce assets such as physical gold and bitcoin (BTC.X). Real estate may not fare as well, given that high interest rates will restrict access to credit. Those rates can also weigh on gold in the short term, as investors prefer to park their cash in interest-bearing money market funds. But this is unlikely to last indefinitely. Having fallen below $4,000 an ounce after climbing above $5,000 in early 2026, gold may offer an opportunity to add to existing positions – or at least to start taking an interest in the metal.

Technology stocks could also continue to rise, reinforcing the United States’ global leadership. There is, moreover, good news for California’s wealthiest residents and entrepreneurs: voters in the state rejected, by 56.41%, a proposed 5% wealth tax on California’s 250 richest individuals. Better still, Proposition 42, approved by 54.4% of voters, enshrines a ban on any new individual wealth tax in the California Constitution. Rationality prevailed over resentment. The United States remains a land of business and opportunity, where some of the world’s most brilliant entrepreneurs can thrive. The S&P 500 therefore continues to hold considerable appeal for investors.