Can votes outweigh capital? Trump's policy shift reshapes risk premiums

As a midterm election year in 2026, Trump’s political constraints are significantly increasing. Currently, the Republican advantage in Congress is very limited, with the most fragile majority in the House of Representatives. After a recent local election loss, the two-party seat count in the House shifted from 218:213 to 218:214, further narrowing the gap between the parties. On January 31, in two special elections held in Texas, a traditionally red state, Democratic candidates defeated Republican candidates twice, winning one House seat and one state Senate seat.

Affordability remains the most pressing issue for voters today. Trump has previously introduced multiple policies aimed at lowering living costs for the public. These include signing executive orders to restrict institutional investors from purchasing single-family homes, instructing the purchase of $200 billion in MBS to lower mortgage rates, proposing a cap of 10% on credit card interest rates, pressuring the Federal Reserve to cut interest rates, and pushing tech companies to pay for data center electricity. However, these policies still face significant hurdles in implementation and expansion.

In the face of midterm election pressures and recent local election losses, Trump may continue to roll out more policies to reduce the public’s financial burden. Affordability will become a core focus of his governance ahead of the midterm elections. Traditionally, markets often assume that election-year policies tend to be more accommodative, benefiting risk assets. However, this assumption implicitly presumes that asset prices are one of the main policy targets. In the current environment, this premise is shifting.

Previously, Trump often touted record highs in the stock market as a achievement during his tenure. In this election cycle, if Trump aims to gain votes by benefiting the public and lowering living costs, his policies will likely favor large corporate profits, especially in high-margin industries. For example, the policies mentioned above—such as the credit card interest rate cap and tech company electricity policies—put pressure on bank stocks and some tech stocks.

If Trump shifts his policy focus from “pro-capital” to “pro-votes,” for the capital markets this means: 1) administrative interventions, price controls, and redistribution of capital returns will become more easily incorporated into the policy toolkit; 2) election-year policies may not necessarily benefit risk assets and could instead increase uncertainty and volatility.

For investors, under the “vote logic,” policy risks for high-margin, high-pricing power industries (such as technology and finance) increase, while assets in cost-benefit and more livelihood-oriented sectors tend to perform relatively better.