Societe Generale's Preview of the U.S. Midterm Elections: Democrats Poised to Take the House, Senate Race Too Close to Call and the Outcome Matters More

According to the latest election model from Societe Generale, Democrats are poised to win control of the House in November's midterm elections, while the Senate race remains too close to call. The model puts the probability of Democrats winning both chambers at 44%; Democrats controlling the House and Republicans controlling the Senate at 43.3%; with the remaining probability mainly reflecting the possibility that Republicans maintain full control of both chambers. It is understood that all 435 House seats and 35 Senate seats will be up for re-election on November 3. Republicans currently hold a 218-214 advantage in the House, meaning Democrats need a net gain of three seats. In the Senate, Republicans hold a 53-47 majority, and Democrats need to gain four seats, since the vice president can cast a tie-breaking vote in a 50-50 deadlock. A Difficult Senate Map Although the national political environment shows signs of a "blue wave" (referring to large-scale Democratic election victories), the Senate electoral map offers Republicans some protection. Democrats must compete in several states that have leaned Republican in recent presidential elections. Societe Generale's model focuses on nine competitive races: Alaska, Georgia, Iowa, Maine, Michigan, New Hampshire, North Carolina, Ohio, and Texas. The model combines analyst ratings, polls, and prices from prediction markets Kalshi and Polymarket, and also employs simulations based on historical polling errors. As Election Day approaches, the weight of polls increases, while the influence of prediction markets depends partly on contract liquidity. This approach yields a more cautious outlook than betting markets, which currently favor Democrats winning the four seats needed to take Senate control. Recent national polls show strong momentum for Democrats. A poll released on September 14 showed the Republican Party trailing Democrats by 7 percentage points, painting a grim picture for the midterm elections. The poll, conducted over four days with 1,143 American adults, found that when asked who they would vote for if the congressional midterm elections were held immediately, 44% of respondents favored Democratic congressional candidates, while 37% favored Republican candidates a 7-percentage-point gap. This is the largest partisan gap in any result from this poll since January 2025. Texas and Alaska Emerge as Key Battlegrounds Texas is becoming one of the most expensive Senate races in the country. Republican groups have pledged to spend more than $50 million to support Ken Paxton in his race against Democratic candidate James Talarico. Recent polls show the two are in a tight race, with some even showing Ken Paxton trailing. Voter concerns about cost of living, as well as U.S. President Donald Trump's support among Hispanic voters, have helped Democrats remain competitive. Compared with Societe Generale's model, prediction markets are more optimistic about James Talarico's prospects of winning. The bank's modeling framework gives less weight to earlier polls, while market prices react more quickly to recent polls and investor sentiment. Alaska has also become a surprise battleground. Former Democratic Representative Mary Peltola is challenging Republican Senator Dan Sullivan, and the last time Democrats won a Senate election in the state was 2008. Recent state polls show this is a competitive race. In addition, another candidate is also named Dan Sullivan, which could cause confusion under Alaska's ranked-choice voting system. Why the Election Outcome Matters to Investors Either of the two most likely outcomes would constrain the Trump administration's fiscal agenda. Democratic control of the House could strengthen oversight and make negotiations over spending bills and the debt ceiling more difficult. If Democrats sweep both chambers, government funding would face greater uncertainty, and the risk of a government shutdown would rise. It could also complicate the confirmation process for Federal Reserve officials, federal judges, and any potential Supreme Court nominee. By contrast, if Republicans control the Senate and Democrats control the House, the Trump administration would still retain the ability to confirm nominees. Trade policy would also remain largely in the hands of the executive branch. Therefore, for investors, the Senate election outcome may be more important than the House flipping, which is widely expected by the market. It will affect Federal Reserve personnel appointments, the direction of fiscal policy, and the severity of potential government funding disputes. At the same time, the outcome could also influence market expectations for tariffs, regulation, and government borrowing. Cost of Living Remains the Dominant Issue Jan Groen, Chief U.S. Economist at Societe Generale, noted that energy costs, tariffs, artificial intelligence, and data centers are the main issues that could determine the closest races. Fuel prices fluctuated sharply after the Middle East conflict, increasing household expenses and heightening inflation concerns. Renewed trade tensions between the United States and Canada have also pushed up the costs of consumer goods, industrial goods, and agricultural inputs. The AI investment boom has driven construction activity and capital expenditure. However, the rapid expansion of data centers has become a political issue, as their growing electricity demand is putting pressure on utility bills and the power grid. The poll found that voters trust Democrats more on issues including healthcare, the fiscal deficit, cost of living, the economy, immigration, and foreign policy. Republicans hold a slight advantage on the AI issue. Societe Generale plans to update its election model weekly ahead of the midterm elections. Currently, the model's core conclusion is that Democrats will likely control the House, but control of the Senate remains too close to call.