US economic and political uncertainty impacts Wall Street

Wall Street is increasingly factoring political uncertainty into asset pricing as the United States approaches midterm elections. With less than ten weeks remaining, polls suggest a Democratic advantage of approximately six percentage points, raising the possibility of a divided government. Investors are concerned that a lack of a Republican majority in Congress could lead to legislative paralysis, making it difficult to pass structural reforms or essential budget measures.

While a divided legislature might prevent extreme policy shifts, analysts note that market volatility often stems from unilateral executive actions. For instance, President Donald Trump has utilized emergency authorities like the IEEPA to implement tariff wars, a trend that may continue regardless of Congressional control.

Separately, economist Tuomas Malinen of the University of Helsinki warns of a potential US recession by the end of this year or early 2027. Malinen argues that high levels of debt and extreme leverage within the financial system, particularly among hedge funds, could transform a standard economic slowdown into a broader global crisis. This perspective contrasts with the prevailing Wall Street view, which remains optimistic about growth driven by artificial intelligence.