Strategist Michael Hartnett frames the November 2026 midterms as a referendum on AI infrastructure, with very different outcomes for equities depending on who wins
Bank of America strategist Michael Hartnett has a message for anyone treating the November 2026 midterms as background noise. In a note from mid-August 2026, he outlined a scenario in which US equities could fall by more than 10%.
The trigger would be a Democratic sweep of both chambers of Congress, paired with a Democratic win in the Texas governor’s race.
Hartnett describes the midterms as pivotal for the direction of US stocks, with the AI sector squarely in the crosshairs. His framework splits the outcome into two very different paths.
Two scenarios, two very different markets
In the first path, Democrats take the House and the Senate, and a Democrat also wins the Texas governorship. Hartnett says that combination could knock US equities down by over 10%.
He also flags that this environment might bring significant downside risk for AI stocks. It could also put pressure on the dollar and on Treasury yields.
The second path looks almost like the mirror image. If Republicans hold the Senate and Texas Governor Greg Abbott wins re-election, Hartnett anticipates a potential rally in equities.
AI-related stocks would be the main beneficiaries in that case. Hartnett suggests the run could lead into a possible bubble phase in 2027.
Why AI and energy sit at the center
The midterms are being viewed as a referendum on AI infrastructure policy. Rising worries over affordability and infrastructure costs have made data center expansion a political issue rather than a purely corporate one.
AI capital expenditure is anticipated to surpass $1 trillion by 2027, according to the research findings.
Meanwhile, global bond yields are reportedly sitting at 20-year highs.
The odds of a Democratic sweep have also climbed. On the prediction market Polymarket, those odds had reached 50% by early September 2026, a significant jump from earlier in the year. The sweep scenario is being treated as a potentially underpriced tail risk.
What history says about parties and stocks
Before anyone rewrites their asset allocation around a party label, BofA’s own historical work adds an important caveat. The bank’s data shows S&P 500 returns have tracked corporate earnings growth more closely than which party holds power.
According to the BofA analysis, 68% of positive S&P 500 years since 1936 were linked with rising earnings per share. The comparable figure cited for Democratic administrations is 54%.
What this means for investors
For investors heavily concentrated in AI and tech, the note reads as a cautionary flag heading into November. The research findings point to heightened regulation and taxation as potential risks under a Democratic sweep.
On the other side, a Republican hold in the Senate and an Abbott re-election would point to a friendlier backdrop for growth stocks into 2027.
The dollar and Treasury yields deserve attention too. Hartnett’s downside scenario includes pressure on both, which would ripple well beyond AI stocks into currency and fixed income markets.
The practical takeaway for portfolios is to watch both tracks at once: the Senate map and the Texas race, while keeping a close eye on whether AI companies keep delivering the earnings growth their valuations assume.
