US midterm election could steer Wall Street and Dalal Street in different directions

Global investors are bracing for possible market moves ahead of the US midterm elections on November 3. While Wall Street watches for shifts in interest-rate expectations, fiscal policy and corporate earnings, Indian investors focus on how the vote may influence US Treasury yields, the dollar and energy prices, which feed into the Nifty and Sensex.

Sohom Banerjee, a senior economic and AI expert, told NDTV that the election will mainly affect equity markets by changing expectations about corporate earnings and the cost of capital. He added that the durability of any rally will depend on the policies that follow.

Historical data shows the S&P 500 has risen an average of about 15% in the year after each US midterm since 1950, according to JP Morgan Asset Management. However, Banerjee cautioned that past performance does not guarantee future returns, noting that monetary policy, economic recoveries and valuations also play a role.

Morgan Stanley expects the vote itself to have limited impact on the broader policy themes that matter most to markets, such as trade, geopolitics and regulation. Nonetheless, the political outcome could shape sector performance. Continued Republican control might preserve President Donald Trump's legislative agenda, while a Democratic-controlled House could increase scrutiny of administration policies. A split Congress could limit sweeping changes but also introduce uncertainty over government funding and the debt ceiling.

For India, the transmission mechanisms are key. Higher US Treasury yields can make emerging-market assets less attractive, potentially prompting foreign investors to cut exposure to Indian equities. A stronger dollar may pressure the rupee and add volatility to domestic markets. Banerjee said these factors, together with energy prices and export demand, will determine how the US election influences Indian stocks.

The US remains a major market for Indian IT services, so American technology spending could boost revenue for Indian firms, while a slowdown could dampen demand. Oil price movements are also critical; higher crude costs would raise India’s import bill and could squeeze margins for energy-intensive sectors, even as upstream producers benefit.

Historical analysis of Indian market returns since 1998 shows an average gain of 4% over six months and 26% over a year after US midterms, but performance has varied across cycles. Banerjee believes the election is more likely to reshape relative sector performance than to set a uniform global direction.

Investors are advised to monitor US Treasury yields, currency movements, oil prices, US technology spending, foreign fund flows and corporate earnings for clues about post-election market dynamics.