As the US midterm elections draw closer, betting markets are increasingly pricing in a Democratic sweep, and Goldman Sachs has prepared a comprehensive trading playbook for the scenario.
According to market tracking data, betting markets currently assign a 67% probability to Democrats winning both chambers. The core logic behind Goldman Sachs' strategy is: go long on healthcare and renewable energy, short large pharmaceutical companies, defense, and cryptocurrencies, while maintaining caution on AI infrastructure. Notably, the underlying rationale is not a bet on which legislation Democrats can pass, but rather an assessment of which sectors will suddenly find themselves in Washington's regulatory crosshairs.
Against a broader market backdrop, whether the Nasdaq 100 Index (NDX) can break out of its months-long trading range on the back of election results is also a key focus for investors. As analyst King Callahan put it, the NDX is currently "running hard just to stay in place."
AI Infrastructure: Who Foots the Bill Becomes a Political Issue
The AI trade is facing a new political variable: electricity bills.
Democrats advocate protecting household consumers from surging power costs, which could force data centers to bear more of the infrastructure buildout expense. The question is no longer whether the US needs more AI infrastructure, but who will pay for it.
Goldman Sachs' recommendation: go long on renewable energy and grid infrastructure, while buying protective positions on hyperscale cloud service providers and data center equipment.
Healthcare: Long ACA Beneficiaries, Short Pharmaceutical Companies
Democrats intend to reinvigorate Affordable Care Act (ACA) subsidies, which could boost patient visits and reduce uncompensated care burdens for healthcare providers, a positive for the healthcare sector.
The flip side, however, is more aggressive drug price negotiation policies, with large pharmaceutical companies bearing the brunt.
Goldman Sachs's operational advice is straightforward: go long on ACA beneficiaries, short pharmaceutical manufacturers.
Government Spending: Non-Defense Sectors Benefit, Defense Stocks Under Pressure
Democrats have historically advocated expanding domestic spending alongside defense budget growth.
Goldman Sachs believes there is upside for government contractors, research institutions, and healthcare-related spending beneficiaries, while stocks with significant defense exposure may face relative pressure.
Goldman Sachs recommends: go long on non-defense government spending beneficiaries, short defense beneficiaries.
Wall Street Meets Washington: Regulatory Pressure Returns in Full Force
A Democratic victory means Washington will adopt a tougher stance toward business.
Goldman Sachs offers short recommendations across multiple sectors: for large tech stocks, antitrust enforcement will return to the agenda; for investment banks and cryptocurrencies, the number of regulators will increase while friendly faces will diminish; for tariff-sensitive stocks, Goldman Sachs notes that investors should not expect Democrats to come to their rescue — in fact, Goldman Sachs expects more upside than downside for tariffs through early 2027.
Homebuilders: Housing Affordability Provides Policy Support
Housing affordability has consistently been a bipartisan political priority. Expanding housing tax credits and first-time homebuyer incentives could provide support for the homebuilder sector. Judging from the relative performance of the homebuilder index versus the equal-weighted S&P 500, the sector holds a comparative advantage.
Goldman Sachs recommends: go long on homebuilders.
Corporate Tax Rate: Limited Near-Term Impact, Long-Term Risks Persist
On the tax front, Goldman Sachs takes a relatively measured stance. With Trump retaining veto power and the 21% corporate tax rate now a permanent provision, Goldman Sachs sees limited immediate risk to corporate earnings in 2027-2028.
Looking further out, however, companies facing higher tax rates could confront a less friendly valuation environment.
Goldman Sachs's conclusion: the tax bill can wait, but the market need not.
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