Democrats have swept the US midterm elections in one of the biggest political swings in decades, taking control of both houses of Congress and a string of governor races. It ends the Republicans’ legislative majorities and complicates Donald Trump’s final two years as US President.

American politics can have impacts far beyond the US. Many New Zealand investors are directly affected, as US shares often make up a large part of a diversified portfolio.

What matters most for your investments, however, may lie beyond the headlines.

Markets surged after the result, suggesting Wall Street had hoped the midterms would be a clearing event. But whether that’s the start of a year-end rally, as midterms have often been in the past, is another question.

A major political shift doesn’t necessarily mean a significant change for markets. There are good and bad takeaways for different sectors, and sharemarkets could spend some time digesting those competing effects rather than simply climbing further.

Sticky inflation, tensions around Iran, oil prices and other new information remain part of that ongoing weighing-up. The election is just part of it.

What changes, and what doesn’t

Democrats will have greater influence over legislation, appointments and investigations, but Trump retains his veto and considerable executive authority, particularly over trade and foreign policy.

That means a Democratic Congress is more likely to produce gridlock than a radically different policy environment, something that has historically been supportive for broad sharemarkets.

Near-term policy changes may therefore be relatively limited. But markets are already looking towards 2028 and what a change in political direction could mean for growth, inflation, government spending and sectors including healthcare and AI.

AI: eyes on the states

While cost of living dominated the election, data centres have become an increasing political focus, particularly at state and local level. Given their importance to economic growth and many listed companies, the result adds uncertainty to the enormous AI infrastructure build-out underway.

Trump’s veto makes significant federal regulation less likely for now, so the more immediate pressure may come from the states. Data centres need land, electricity and approvals to build, and Democratic gains, including in Texas, increase the prospect of new conditions on development. But that may just slow and extend the data-centre build-out rather than stop it.

The impact could also cut both ways. Slower data-centre construction may raise costs and delay projects, but could also benefit established cloud companies such as Microsoft and Amazon that already have significant computing capacity and infrastructure in place.

A slower build-out could also ease investor concerns about the huge sums major technology companies are spending on AI, potentially taking pressure off market interest rates.

Lower rates could support rate-sensitive and cyclical sectors such as homebuilders and industrials, helping broaden sharemarket performance beyond companies most closely associated with AI.

Oil and geopolitics still matter

Oil prices fell sharply after the election results, partly reflecting hopes of an easing in the conflict with Iran. But it’s too early to have much conviction about what happens next there.

Congress has shown little ability to act as a brake on Trump’s foreign policy, and the risk of further conflict in the Middle East remains significant.

Tariffs are also likely to remain in place. Further out, however, markets will increasingly consider the possibility of a change in direction after the 2028 election. That means Trump’s current geopolitical policies are far from locked in as permanent.

What it means for your investment plan

The election has changed the US political landscape, and there will be consequences for individual sectors and businesses. Markets liked the result the morning after, but each day brings new information to digest.

That’s what active investment managers like Milford do continuously, adjusting portfolios where changes in the outlook, valuations and risks warrant it.

For our clients, that doesn’t necessarily mean changing long-term investment strategy. A sound plan remains grounded in your goals, timeframe and tolerance for risk.

Elections matter, but they’re only one part of what moves markets. One election result or one day’s rally usually shouldn’t be a reason to rewrite a long-term plan.