Wealth Insights
What the current political climate means for your finances

Article 7 min read Updated April 1, 2026

Explore how changes in Washington in 2026 could affect the economy and your portfolio.

With the 2026 midterm elections coming up, we’re all looking ahead to see how things will unfold. The hypothetical scenario of having Republicans in control of the Senate and the White House and Democrats gaining control of the House has left some investors uneasy as they consider how a divided government might affect the economy and the markets.

There may be a few bumps in the road. “Historically, the second year of an administration typically generates the lowest returns of the four-year cycle,” says Alan McKnight, Chief Investment Officer at Regions. “The returns on average are still positive, but it creates a level of uncertainty and volatility for stocks.”

When it comes to your portfolio and financial plan, how can you separate the noise from sound investment practices? McKnight shares how he’s viewing the year ahead—with a dash of stoic philosophy.

The markets

For stocks, there is reason for hope. “We are cautiously optimistic on the outlook for the U.S. stock market, with corporate earnings continuing to improve and the overall U.S. economy on firm footing,” McKnight says.

Another factor in favor of the markets is the “One Big Beautiful Bill Act,” which extends, expands or implements tax breaks for corporations and individuals. “It could act as a tailwind as consumers and businesses should have more capital to spend and that should drive better sentiment for earnings more broadly.” The boost in income might be partially offset by the impact of tariffs, however.

Then there are geopolitical tensions in the Middle East, which are contributing to market volatility and inflation pressures, including elevated oil prices.

While markets have reacted, much of the impact depends on how long disruptions persist.

Finally, this year has the potential to interrupt old patterns. “We also believe that markets may undergo a rotation that could provide a tailwind to small and mid-cap companies, as well as more value-oriented sectors of the market. This rotation would be the logical transition after three years of returns being driven by large- and mega-cap companies in the growth sectors of the market.”

With so much change on the horizon, investor sentiment can shift quickly, which is why the words of Stoic philosopher Epictetus feel especially relevant: “It’s not things that upset us, but our judgments about things.”

The impact of AI technology

The story of how artificial intelligence and large language models impact U.S. industry is not likely to be immediate or dramatic. “AI could continue to drive gains in productivity and efficiency, albeit likely not at the rate that many investors have expected,” McKnight says. “With new technologies, there is typically a lag for adoption that truly drives the level of productivity and margin improvement currently baked into valuations for the sector.”

“Nevertheless, we believe AI and automation will be a key ingredient in developing future improvements, and, more importantly, assist the developed world as we experience the demographic silvering of the globe.” In 1974, only about 5.5% of people worldwide were over 65. By 2074, that share is expected to rise to roughly 21%, according to the latest U.N. data, creating a completely different labor force.

The bottom line when it comes to technology-driven change? Expect progress, not straight lines.

Inflation and the economy

You are likely keeping a close eye on the fight against inflation as an investor. The truth is that a divided government is unlikely to have much of an impact on rising prices.

Monetary policy through the Federal Reserve is one of the primary drivers in combating inflation, versus legislative action. Our economic analysts see limited room for further Fed funds rate cuts this year, given the “higher for longer” environment for inflation, including a spike in energy prices related to the Iran conflict, and a sustainable, stable pace of economic growth. Our forecast is for U.S. GDP to grow 2.5% in 2026, according to Regions Chief Economist Richard Moody. This forecast reflects current economic conditions and may change.

Midterm elections

As we inch closer to the November 3 midterm elections, McKnight says to expect a more volatile landscape. The election has the potential to shift power in either chamber of Congress, and that hypothetical can make waves: “The market craves consistency and dependability.”

However, keep in mind that the prospect of a divided government is a scenario markets have historically tended to digest well, as it lowers the odds of sweeping policy changes. Some long-term market studies have shown that periods of divided government have coincided with strong returns, McKnight says.

What all this means for you

As Stoic philosopher Marcus Aurelius reminds us, “Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth.” Keeping that in mind can help you stay calm when uncertainty rises.

“Don’t allow the noise of the markets and the 24/7 news cycle to impact your daily decision making,” McKnight says. “Instead, play the long game. The key is to have long-term goals and objectives that capture your overall risk tolerance and how you want to ‘travel the path’ to achieve those goals. We envision greater volatility in the back half of the year, so it will be even more important to stay focused on what you can control.”