CITIC Securities: Can Mid-Term Election Pressure Still Trigger “TACO”?

The Zhitong Finance App learned that CITIC Securities released a research report saying that halfway through the 2026 midterm election process, the main game strategies of the two parties are gradually being clarified. According to state-by-state analysis, the Democratic Party's victory over the House of Representatives and the Republican Party holding on to the Senate is currently the most likely outcome. A split between the two houses will increase friction over Trump's administration, but as long as the Republican Party retains the Senate, the pressure on issues involving the Supreme Court, impeachment investigations, and election disputes will be limited. The “TACO” restrictions on Trump in the election may be weaker than previous market expectations, so it is recommended to observe changes in financial conditions and asset prices more.

CITIC Securities's main views are as follows:

Halfway through the midterm election primaries, polls in various states are beginning to have indicative significance, and the main game strategies of the two parties have gradually become clear. It is not enough to explain the “TACO” logic based on winning the election alone

The market generally sees the midterm elections as the core source of Trump's political pressure, but general discussions are inaccurate, and specific judgment is still needed from the dimensions of key state elections and the path of control between the two parties. As the main candidates of the two parties were determined one after another, polls in various states began to have indicative significance, and the main game strategies of the two parties were gradually clarified. The Republican Party still focuses on borders, security, and traditional values, and the victory of progressives such as El-Sayed also provided targets for shaping the Democratic Party into a “radical left”; the Democratic Party focused on attacking the cost of living, tariffs, health benefits, war, and the expansion of administrative power. Trump's endorsement is still valid in the Republican primary election, but its role is mainly to integrate within the party, making it difficult to directly guarantee victory in the general election.

It is currently the most likely outcome for the Democratic Party to win the House of Representatives and the Republican Party to hold on to the Senate

On the House side, the Republican Party may be able to get a buffer of about 6 seats through the rezoning of constituencies, but the majority of seats are too thin, and it is still difficult to completely offset the pressure of the ruling party losing its seat in the middle of the term and the backwardness of the national election situation. However, on the Senate side, the election map is relatively favorable to the Republican Party. The Republican Party currently holds 53 seats, and the Democratic Party camp has 47 seats; since the Republican Party Vice President can cast a breakout vote at 50-50 o'clock, the Democratic Party must net increase by 4 seats to reach 51 seats.

Specifically, Georgia, New Hampshire, and North Carolina are currently relatively beneficial to the Democratic Party. Ossoff, Pappas, and Cooper mainly rely on personal image, fundraising ability, and appeal to middle voters; Michigan and Maine are closer to being evenly matched; while Iowa, Ohio, Alaska, and Texas are still constrained by the basic structure of the Republican Party, historical voting traditions, and the Democratic Party's ability to mobilize across parties. The Democratic Party must not only avoid losing its seat, but also win at least seven of the nine battleground states. The path to victory is significantly narrower than that of the Republican Party.

A split between the two houses will increase friction in Trump's administration, but it is difficult to form a fundamental constraint

In a situation where the Democratic Party takes over the House of Representatives and the Republican Party holds the Senate, the Democrat-controlled House of Representatives can initiate investigations, subpoenas, and impeachment, and also block new large-scale partisan legislation; however, the Senate still requires a two-thirds majority to pass impeachment. If the Republican Party maintains the Senate, it can also push for nominations of government officials and Supreme Court justices by a simple majority.

In terms of financial supervision, it will be more difficult to implement the deep adjustments required by the National Assembly to amend the law, but adjustments in bank supervision, enforcement scales, and administrative rules are already mainly driven by administrative departments and regulators, so the direction of short-term regulation will not necessarily be reversed. In terms of fiscal policy, the two parties and the two houses may be more likely to be at an impasse due to budget and debt ceilings. The risk of shutdown, debt ceiling games, and repeated policies may rise, but compromises can also be reached through mutual inclusion of spending claims.

As far as the market is concerned, the midterm election's restrictions on Trump's “TACO” may be weaker than previous market expectations. It is suggested that changes in financial conditions and asset prices can be observed more

Compared to the Democratic Party controlling both houses of the Senate and the House of Representatives at the same time, although the division of the two houses will intensify the political game at the level of investigation of impeachment, budgeting, and policy implementation, as long as the Republican Party holds the Senate, extreme situations such as impeachment and conviction and blocking of judicial appointments will be more difficult to occur. The competition between the two parties will also revolve more around the 2028 general election, and the overall political risk is manageable.

At the same time, Trump's “TACO” restrictions on the midterm elections may be weaker than the market's previous expectations, and election pressure will not necessarily push him to back down on issues such as tariffs and wars. Therefore, when judging whether Trump will adjust policies in the face of pressure, it is recommended to observe changes in financial conditions and asset prices more, and moderately reduce the attention paid to fluctuations in election predictions on platforms such as Polymarket.

risk factors

The geopolitical situation worsened beyond expectations; the US economic situation changed beyond expectations; the US election situation was uncertain.