The midterm results point to divided government through 2028, limiting the scope for major federal legislation or new spending programs. Democrats are unlikely to overcome a presidential veto, even with 55 Senate seats. Russell Investments says the election does not yet justify pricing a more progressive 2028 policy agenda into markets.
Following U.S. midterm results, Paul Eitelman, Chief Investment Strategist, Russell Investments, shares the potential implications for markets and the data center rollout. Views are as of 10:00 am Eastern Time on November 4, 2026.
Key takeaways:
- Divided government makes major federal policy changes unlikely.
Data center moratorium proposals in Texas, Georgia and Ohio raise risks for AI infrastructure development.
The election leaves our broad market outlook unchanged, while adding political and execution risks to watch into 2027.
Democrats sweep the midterms
Democrats are projected to take control of both chambers of Congress, with a larger-than-expected Senate gain and decisive wins in several states central to the AI buildout.
The results will leave Washington divided through 2028, limiting the scope for major federal policy changes. At the state level, however, incoming governors have proposed restrictions that could affect the pace of AI infrastructure investment.
How markets are reacting
Markets rallied following the Democratic sweep as election uncertainty faded and investors anticipated greater limits on the administration's agenda. S&P 500 futures reversed early losses to gain 1%, while Nasdaq 100 futures also moved higher.
The dollar fell against all major currencies, while the 10-year Treasury yield declined two basis points to 4.93%. Investors appear to be pricing in less fiscal expansion and government borrowing, easing pressure on bond yields. Lower yields, combined with resilient economic growth, have also supported equities.
Not all stocks benefited. Tesla and SpaceX came under pressure following Democratic victories in Texas, while oil prices declined after President Trump indicated he had no immediate plans for strikes on Iran.
Historically, markets have tended to rise following midterm elections as uncertainty fades. The focus now turns to which proposals become policy and whether they affect the economic growth and corporate earnings supporting markets.
Pressure on spending
Even with 55 Senate seats, Democrats lack the votes to override a presidential veto, making major new legislation and spending programs difficult to pass.
Democrats are likely to prioritize initiatives such as expanding access to Medicaid and SNAP benefits, along with greater oversight of the administration. However, divided government will constrain their ability to enact major changes, leaving much of the current tax and spending policy intact.
Congress could also constrain the administration's proposed $1.5 trillion defense budget for 2027, while trade policy remains largely under executive control.
Corporate earnings are expected to remain above trend, and the immediate impact on economic growth and inflation appears limited. While a decisive Democratic victory raises questions about corporate tax policy after 2028, it is too early to price a future administration's agenda into markets.
Implications for data center development
For the first time since 1987, Democrats will hold the governorships of Texas, Georgia and Ohio. All three incoming governors have supported proposals to pause or restrict new data center development.
Source: Russell Investments, Aterio, public comments of officials. November 3, 2026.
| State | Democrat wins | Policy proposals |
|---|---|---|
| Texas | Hinojosa (G), Talarico (S) | Hinojosa campaigned on an immediate moratorium on new data centers until the TX legislature passes protections; requiring developers to show projects won't raise electricity/water costs; and ending subsidies for data centers. |
| Virginia | Taylor (H), Luria (H) | Flipped House districts are not in Virginia's "data center alley", but both Taylor and Luria campaigned on more restrictions. |
| Georgia | Bottoms (G) | Bottoms called for a statewide pause on new data center construction while Georgia assesses the effects of these facilities on electricity/water costs, the environment and local communities. |
| Pennsylvania | Cognetti (H), Harvie (H), Brooks (H), Stelson (H) | Cognetti's win was in a key district where data centers are concentrated. She supports more data center regulation including protections against higher electricity bills, pollution and new zoning rules. |
| Ohio | Acton (G), Brown (S) | Acton supports a conditional moratorium, pausing new data center projects unless they cover all utility costs, use union labor, meet environmental standards, and benefit local communities. |
H = House Representative, S = Senator, G = Governor
The effects could extend beyond data center developers to construction, HVAC and electrical equipment, industrial machinery, utilities and AI hardware. Restrictions that delay projects or raise development costs could affect both corporate earnings and the pace of AI-related investment.
What we're continuing to watch
Data center restrictions. Whether campaign proposals become law, particularly in Texas, where the development pipeline is largest. The scope and timing of any moratorium will determine how much planned investment is affected.
AI investment and economic growth. Whether higher costs and project delays begin to affect capital spending. AI infrastructure has been an important contributor to growth, making the pace of development consequential for the broader economy.
Corporate earnings and supply chains. Whether slower construction affects demand for semiconductors, electrical equipment and other infrastructure, including suppliers across Asia.
Federal spending and fiscal policy. Whether divided government constrains defense spending, delays budget agreements or raises the risk of a debt ceiling standoff.
Corporate tax policy. Whether investors begin pricing in the possibility of higher corporate taxes after the 2028 election, even as existing policies remain largely intact.
Our market outlook
We do not see the election as a reason to change our broad market outlook. The global economy remains resilient and corporate earnings are robust. The results do, however, raise new political and execution risks around the AI infrastructure cycle that bear watching into 2027.
Common client questions
Newly elected governors in Texas, Georgia and Ohio support proposals to pause or restrict data center construction, citing electricity and water costs, environmental standards and community impacts. Texas is especially significant because it represents roughly a quarter of the U.S. development pipeline. These measures could also affect construction, utilities, HVAC, electrical equipment and AI hardware.
Russell Investments says the election does not change its broad market outlook, supported by a resilient global economy and robust corporate earnings. However, state-level opposition to data center development adds political and execution risks to the AI infrastructure cycle. Investors will be watching how proposals develop into policy and whether they slow projects into 2027.
Potential restrictions on data center development could affect companies across the AI infrastructure supply chain. The blog highlights construction, HVAC and electrical equipment, industrial machinery, utilities and AI hardware as areas to watch. The impact will depend on which proposals become policy and whether they delay or limit planned projects.
Midterm outcomes are an unreliable guide to the next presidential election, according to the blog. While the results may bring a more progressive policy agenda into focus, it is too early to price that possibility into markets. The immediate policy outlook remains constrained by divided government and the presidential veto.