Addressing the ‘State’ of the Midterms, Economy and Markets

by Larry Adam of Raymond James, 2/20/26

Key takeaways

  • Betting markets currently reflect that Democrats will flip the House
  • Despite depressed confidence, the US economy remains on solid footing
  • A muted start to the year for the S&P 500, but fundamentals are strong

President Donald Trump is set to deliver the first State of the Union address of his second term to a joint session of Congress on Feb. 24, 2026. While the Supreme Court’s IEEPA decision and a partial government shutdown may hang over the highly anticipated speech, the president is still expected to spotlight several policy achievements from the first year of his second term. Chief among them are the passage of the One Big Beautiful Bill Act, which is widely expected to generate sizable tax refunds for households this year, and sweeping changes to US trade policy. Markets will be listening closely for clues about the administration’s key legislative priorities over the next three years, as well as any broader initiatives heading into November’s midterm elections. In the spirit of the State of the Union, we share below our own take on the current “state” of the upcoming midterm election, the economy and financial markets.

State of midterm elections

It’s been a busy start to the midterm election year in Washington, marked by a second government shutdown, rising geopolitical tensions - including Iran and Venezuela – and continued uncertainty around tariffs. While the economy has so far held up well, President Trump’s approval rating has moved in the opposite direction, slipping to ~41%. That’s near the low point of his current term and roughly in line with where it stood at this stage of his first term. Historically, presidential approval ratings have been closely linked to changes in House seats during midterm elections. Reflecting that, betting markets now assign an 84% probability that Democrats take control of the House, along with a rising – now 40% – probability that the Senate flips as well. With roughly 250 days until election day and the economy and cost of living topping voters’ concerns, affordability is likely to remain front and center for the administration. While many proposed measures, such as the credit card interest rate cap, would require congressional action, the Trump administration is expected to maintain its focus on lowering health care, energy and housing costs.

State of the economy

Even as consumer confidence has slipped to a 12‑year low, the US economy continues to grow at a healthy pace. Strong business investment, especially in the tech sector, along with resilient consumer spending has kept momentum intact. That said, concerns about the labor market haven’t disappeared. Job growth stalled in 2025, with the economy adding just 181,000 jobs, though the unemployment rate remains a historically low 4.4%. Many companies, rather than hiring aggressively, are focusing on boosting productivity with their existing workforce as they adapt to the AI transition. Inflation, meanwhile, has stayed stubbornly above the Fed’s 2.0% target for a fifth straight year, but once the effects of tariffs fade, likely around midyear, we expect the disinflationary trend to resume. Looking ahead, economic growth should remain on solid footing, supported by favorable financial conditions, one expected Federal Reserve (Fed) rate cut this year, fiscal stimulus from the One Big Beautiful Bill tax changes and continued strength in capital spending. In fact, mega‑cap tech investment is projected to jump ~50% in 2026. These factors underpin our economists' forecast for 2.4% growth next year.