Prediction Markets Signal Rising Odds of Democratic Midterm Sweep, Posing Equity Risks

Prediction markets indicate a high likelihood of Democrats securing control of both congressional chambers ahead of U.S. midterm elections, raising concerns for richly valued equity markets. Polymarket shows a 68% probability of a Democratic sweep, while Kalshi previously priced odds near 70%, up from below 50% in September. Analysts warn that a sweep could spark regulatory scrutiny over artificial intelligence infrastructure build-outs and complicate federal debt-ceiling negotiations expected in the first half of 2027. Historically, a divided Congress under a Republican president has yielded an average annual stock return of 7.33% since 1926.