Bank of America's chief equity strategist, Michael Hartnett, says a Democratic sweep of Congress in the midterm elections could push U.S. stocks down more than 10%. Prediction markets now give that outcome rising odds. BofA's own history shows earnings growth has tracked market returns more closely than party control.
Michael Hartnett said a Democratic win of both the House and the Senate could make U.S. stocks plummet more than 10%. He called the rising probability of that result a meaningful threat to risk appetite.
Prediction markets see a 64% probability of a Democratic sweep in next month's midterms. On Polymarket, those odds had reached 50% by early September 2026.
Two scenarios in the BofA note
Hartnett's note from mid-August 2026 pairs the sweep with a Democratic win in the Texas governor's race. He also flags that this environment might bring significant downside risk for AI stocks and could pressure the dollar and Treasury yields.
The second path runs the other way. If Republicans hold the Senate and Texas Governor Greg Abbott wins re-election, Hartnett anticipates a potential rally in equities, with AI-related stocks as the main beneficiaries.
Earnings matter more than party
BofA's own historical work adds a caveat. Its data shows S&P 500 returns have tracked corporate earnings growth more closely than which party holds power.
According to the BofA analysis, 68% of positive years for the S&P 500 since 1936 were linked with rising earnings per share. The comparable figure cited for Democratic administrations is 54%.
Sources: MarketWatch (snippet-based), Crypto Briefing
Trading involves risk.
Risk Disclaimer
