[Weekend Money] "Sell Republicans, Buy Democrats?" U.S. Investors' Strategy

With the U.S. midterm elections approaching in November, a growing number of U.S. investors are reportedly adopting what is being called a “short-term trading strategy of selling Republicans and buying Democrats.” Analysts say increased volatility is inevitable until the election results are known.

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Jeong Jeongyeong, a researcher at Korea Investment & Securities, made the assessment in a recent U.S. strategy report titled “What Are U.S. Investors Watching Now?” The U.S. midterm elections will be held on November 3, 2026, local time. Interest in this year’s midterms is high, given the successive shocks to the global economy and financial markets since the start of the second Trump Administration, including the imposition of tariffs and the war in the Middle East.

Citing the U.S. prediction market platform Polymarket, Jeong said expectations that Democrats will gain control of both chambers of Congress are growing. The odds of Democrats taking control of the House have exceeded 90%, while their chances of securing the Senate began to exceed 50% in August.

Of the 23 midterm elections held since 1934, the president’s party has lost control of both chambers only four times: in 1946, 1954, 1994 and 2006. Jeong said, “The factors behind the governing party’s losses in those elections were mainly wars, inflation, failures in managing disasters and crises, or excessive policy pushes.”

Another analysis said it would be excessive to attribute recent rising volatility and falling U.S. long-term interest rates to the artificial intelligence (AI) cycle and recession fears. “So far this month, the proportion of advancing stocks in the U.S. market has remained supported at a floor without falling further, and small- and mid-cap stocks have also shown improving relative strength compared with large-cap stocks,” Jeong said. “This suggests that expectations about the historical pattern of midterm election results are being reflected in the stock market, rather than concerns about the AI cycle and a recession.”

Jeong also noted, “Since prediction data became available in July 2025, the probability of Democrats taking control of the Senate has moved in tandem with the yield on 10-year U.S. Treasury notes.” He added, “In particular, since the probability of Democrats taking control of the Senate rose meaningfully above 50%, weakness has become pronounced in data-center-related stocks (DTCR ETF), a key focus of President Trump and Republican policy.”

“The relative performance of DEMZ (Democrats) and MAGA (Republicans), two prominent politically themed exchange-traded funds (ETFs), has also followed a pattern similar to that of 10-year Treasury yields,” he said, describing the market as one where “investors are selling Republicans and buying Democrats.”

However, it is difficult to predict the election results in advance and build long-term positions. “Investors should be aware that volatility may rise in response to news that emerges from time to time,” he said. “Increased volatility will be inevitable until the actual election results are known.”

This content was produced with the assistance of AI translation services.