US Midterm Update: Latest Polymarket pricing puts Democratic sweep at 50%
What is priced?
- 82 days until the election and the House is still widely expected to go to the Democrats whilst the Senate remains a close call.
- Polymarket odds show participants have continued to heavily favour Democrats to win the House at 88% (prev. 86%), whilst for the Senate, it is priced as a close call with Democrats holding a 53% chance to take the Senate (prev. Republicans held the edge at 56%).
- Polymarket shows the probability of a Democrat sweep at 50%, while pricing a Republican Senate and Democratic House at 38%.
Recent developments
- Top officials state that Trump is looking for new policy pledges he can present to voters ahead of the midterm election, according to Bloomberg. The report notes that Trump may call on Congress to cut capital gains taxes and create an exemption for certain home sales. One of the measures touted would be indexing capital gains, so taxes would be applied on gains adjusted for inflation, while there could also be exemptions on sales of homes worth USD 2mln or less from capital gains taxes. NEC Director Hasset stated in an interview with Fox Business' Kudlow “So you can expect a lot more policy between now and the midterms".
- Politico reported that the Trump administration is sunsetting a subsidy program that lowered Medicare prescription drug coverage premiums for older Americans — just ahead of the midterm elections, giving the democrats an attack point against the republicans.
Trump's key issues
Approval vs. Disapproval Ratings
The RCP average compiles pollsters and provides an average approval or disapproval rating across key topics.
| Topic | Approve % | Disapprove % | Difference (Approve – Disapprove) |
|---|---|---|---|
| Overall Approval | 39.2 | 58.6 | -19.4 |
| Economy | 36.6 | 61.2 | ‑24.6 |
| Foreign Policy | 38.4 | 57.6 | ‑19.2 |
| Immigration | 44.3 | 53.6 | ‑9.3 |
| Inflation | 30.5 | 67.7 | ‑37.2 |
| Iran | 35.9 | 61.3 | -25.4 |
| Crime | 45.2 | 50.2 | ‑5.0 |
| Russia/Ukraine | 36.7 | 56.1 | ‑19.4 |
| Israel Hamas | 38.8 | 54.0 | ‑15.2 |
Observations
- All topics show a higher disapproval than approval, indicated by the negative differences.
- Inflation has the largest gap (‑37.2 points), suggesting the strongest public dissatisfaction.
- Crime shows the smallest gap (‑5.0 points), indicating the closest balance between approval and disapproval among the listed issues.
Throughout the year polling has shown the spread between those who either unfavour or disapprove, or favor and approve of US President Trump's job, has widened.
The latest Reuters/Ipsos Poll (August 3rd, 4,505 US adults)
- Democrats lead Republicans 37% to 36% on stewardship of the US economy, which Fox highlights is the first time since 2007. 27% said they are not sure that a different party would do a better job.
- Approval of US President Trump fell to 35% from 37% from the prior poll.
- In congressional elections, 42% of registered voters would vote for a democrat, and 37% would vote for a Republican if the contest were held now. Independents favoured democrats over Republicans by 12 points.
- Regarding the House and Senate votes, the poll finds that roughly 36 of the 435 seats are expected to be competitive, while eight Senate seats are expected to be competitive.
- Despite the polling, US President Trump continues to claim he is doing well in the polls and to ignore the fake news media.
- A previous Reuters/Ipsos poll (July 27th) found 1/3 Americans support the war on Iran, the lowest reading in a Reuters/Ipsos poll since the five-month-old conflict's early days, with most respondents saying that Trump has failed to explain his goals.
SAVE America Act
- Trump has previously suggested that Republican success in the midterms is contingent on passage of the SAVE America Act. That has so far failed to materialize: the legislation has passed the House multiple times but remains stalled in the Senate, where it faces the 60-vote threshold required to overcome a filibuster.
- Trump has pushed the SAVE America Act into Reconciliation 3.0, a mega bill, consisting of USD 73bln in defense funding, USD 12bln in farm aid, and a USD 10bln fund aimed at incentivizing states to adopt elements of the SAVE America Act.
- The Reconciliation 3.0 mega bill would only need a simple majority to pass in the Senate.
- So far, the budget framework of Reconciliation 3.0 passed in the House earlier in July. Senate GOP leadership pulled a planned vote in early August rather than bring it to the floor, having concluded they didn't yet have the 50 votes needed to proceed.
- On defense funding, Trump had originally sought as much as USD 350bln for the reconciliation package, well above the USD 73bln that ultimately passed the House — reporting suggests Sen. Ron Johnson may push to revisit a larger number when the Senate takes this up in September.
- Now, having failed to secure the votes before the August recess, the White House is shifting its focus to September, when the Senate returns to face a similar vote alongside the broader government-funding deadline.
Equity Impact
Goldman Sachs Key Points
- In past cycles, economic policy uncertainty has usually risen in August ahead of midterm elections and remained elevated in the subsequent few months.
- Equities have typically traded sideways in the few months ahead of midterms. During 13 midterm election years since 1974, the S&P 500 has generated a median return of 0% from the start of August through Election Day. Returns have typically improved post-election. Mirroring this pattern, mutual funds and foreign investors have generally demonstrated reduced demand for US equities ahead of midterm elections but increased allocations afterward.
- The outcome of the midterms is unlikely to be a major cause of equity volatility.
- Within the equity market, most sectors, factors, and thematic baskets have traded with no substantial correlation to prediction market probabilities of election outcomes in recent months, although this may change as the election draws closer.
Prediction-market pricing of this kind tends to converge with polling averages as elections approach, but the two can diverge early in the cycle, and the Senate moving from a Republican edge to a coin flip is the signal rather than the House, which has been treated as settled for months. The transmission of divided-government risk historically runs through fiscal expectations rather than the vote itself: a sweep scenario prices continued reconciliation capacity and tax-change optionality, while a split Congress prices gridlock, which in past cycles has compressed legislative tail risks and left the executive's regulatory and tariff agenda as the live channel. The capital-gains indexing trial balloon fits a familiar pre-election pattern of administrations floating tax pledges late in the cycle; such proposals have historically required Congressional action and rarely survived contact with the calendar. The stalled reconciliation vehicle and the September government-funding deadline are the concrete follow-ons, since a funding fight landing weeks before the vote has in previous episodes been the mechanism by which midterm risk actually repriced rates and the dollar. Sideways equity trading into midterms with resolution afterward is the well-worn seasonal pattern, and sector-level correlation to prediction-market odds has typically only emerged in the final weeks. The Reuters/Ipsos generic-ballot margin and the competitive-seat counts are the tells for whether the 50% sweep pricing holds or drifts.