Wells Fargo: Before the midterm elections, it is advisable to bet on U.S. Treasuries rising and short the dollar.

Strategists at Wells Fargo recommend betting on U.S. duration assets rising and shorting the dollar ahead of the November 3 midterm elections. "The two most likely outcomes, namely a Democratic sweep of both chambers and a split Congress with Democrats controlling the House and Republicans controlling the Senate, would both bring some degree of negative fiscal shock," strategists Erik Nelson, Angelo Manolatos and Francis Brown wrote in a Friday report. If Democrats take both chambers of Congress, it could be bearish for AI-themed trades, thereby boosting U.S. Treasuries and weighing on the dollar. The strategists said Trump's threat to escalate war with Iran is negative for duration and positive for the dollar, as it could damage energy infrastructure in the region and drive up risk premiums in energy markets. The report said a potential surprise scenario includes Republicans holding the Senate, which would create the strongest political gridlock and thus "most likely bring fiscal consolidation," boosting bonds and dragging down the dollar. The strategists said if Republicans outperform expectations and ease market concerns about an AI backlash, the above effects could be offset, with the ultimate impact potentially neutral.