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[Midterm Elections Approaching: Morgan Stanley Assesses Congressional Landscape and Market Variables] ⑴ With the Federal Reserve's September meeting concluded, strategists are turning their attention to the November US midterm elections. ⑵ Morgan Stanley's Gerald G. Graham noted in a report that Republicans currently hold 220 seats in the House of Representatives, while Democrats hold 215, their narrowest majority since 1930. ⑶ This means that Democrats only need to gain 3 seats to seize control, while Republicans cannot afford to lose more than 2. ⑷ In polls asking voters which party they would currently vote for, the Democratic lead has widened to 8.1 percentage points, and the president's approval rating hovers around 40%. ⑸ The consumer confidence index is 47.8, well below the historical average of 85 for election years, and regular gasoline prices have risen 29.5% since August 2025. ⑹ 47% of registered voters said the cost of living is the most important factor influencing their vote, up from 39% in January. (7) Considering the aforementioned concerns, the concentration of undecided districts in Republican-controlled seats, and the historical average loss of 30 seats in the House of Representatives by the incumbent president's party, Glaser believes the Republicans face a difficult election. (8) However, the institution's baseline scenario forecast indicates that although the risk of the Republicans losing control of the House is substantial, they should be able to retain control of the Senate. (9) The Democrats need a net gain of 4 seats to obtain an absolute majority in the Senate. As of September 16, the forecast market indicated an 86% to 88% probability of the Democrats controlling the House and only a 54% to 59% probability in the Senate. (10) Historically, the long-term performance of equity markets differs between a divided Congress and a unified Congress, but past statistics do not constitute guidance for future trends. (11) Overall, the election landscape and expectations of policy divergence will be important variables for market sentiment in the coming months.