Defense, Healthcare, Crypto and AI: How the Midterm Election Could Reshape Your Portfolio

 Defense, Healthcare, Crypto and AI: How the Midterm Election Could Reshape Your Portfolio

**By [moonlight editory team ] | November 2, 2026 | 12-Minute Read**

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## The Short Version (For the Busy American)

The midterm elections are tomorrow, and Wall Street has already placed its bets. Prediction markets give Democrats a **93% chance of winning the House** and a **71% chance of taking the Senate** . A Democratic sweep—winning both chambers—is priced at roughly **64% to 70%** .

But here's what matters more than who wins: **markets don't react to outcomes they've already priced in**. They react to surprises . And the sectors most exposed to Washington—**defense, healthcare, crypto, and AI**—are bracing for a new era of investigations, spending fights, and regulatory uncertainty.

**The punchline:** The election won't change the trajectory of the AI boom or the defense budget. But it will change **who holds the subpoena power**—and that changes the risk calculus for every company that depends on government contracts, approvals, or regulatory forbearance.

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## Defense: The Budget Fight Is Coming

Defense stocks like **Lockheed Martin** and **RTX** depend on government contracts for a huge share of their revenue—Lockheed gets about **70% of its sales from the U.S. government** . A Democratic Congress can't slash the defense budget on its own, especially with a Republican president holding the veto pen.

But it can **complicate the process**. A divided Congress could delay spending agreements and slow program approvals . Democrats have also signaled interest in scrutinizing government contractors—particularly those with ties to the Trump family or the administration's allies .

The bigger risk isn't a cut to defense spending. It's **the noise**. Every subpoena, every hearing, every negative headline creates volatility. And defense stocks, which trade on multi-year contract visibility, don't like volatility.

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## Healthcare: The Medicaid Squeeze

Healthcare is where the election's impact could be most concrete.

Trump's 2025 tax and spending law—the "One Big Beautiful Bill"—is projected to **cut federal Medicaid spending by $911 billion through 2034** . New work requirements for Medicaid enrollees are scheduled to take effect **January 1**, and tighter state budgets could mean fewer people covered and greater pressure on provider payments.

**Molina Healthcare** is the poster child for this risk. **75% of its 2025 premium revenue** came from Medicaid. The company's own SEC filing warns that losing government contracts or failing to renew them on favorable terms could materially reduce revenue .

If Democrats win either chamber, they can't repeal the 2025 law. But they **can use must-pass budget negotiations** to seek funding changes or delays to some cuts. LPL Financial's Jeff Buchbinder put it simply: **"They're probably going to push back on those Medicaid cuts"** . Preserving coverage would stabilize enrollment for Medicaid insurers and patient volumes for hospitals.

Pharma faces a different dynamic. Democratic gains could increase pressure on **prescription drug prices**—a negative for companies like Pfizer and Eli Lilly, even as hospitals and insurers benefit from expanded coverage .

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## Crypto: The CLARITY Act Dies, but the Administration Lives

The crypto industry bet heavily on this election. Coinbase donated about **$57.8 million**, Ripple about **$49.6 million**, and the Winklevoss twins about **$55.9 million**—almost all to Republican-aligned causes . The prize was the **CLARITY Act**, a market structure bill that would have given crypto a clear regulatory framework.

A Democratic sweep likely **kills CLARITY for now** . But the industry isn't defenseless. The **SEC and CFTC chairmen are still Republican appointees**, and they can provide regulatory clarity through administrative guidance even without legislation .

The bigger short-term risk is **sentiment**. Crypto-linked stocks—Coinbase, Strategy, and the miners—are rate-sensitive and risk-on. A Democratic sweep could pressure them amid uncertainty over tech taxes and regulation . Bitcoin itself may fall less, because it's less tied to U.S. regulatory outcomes than the stocks that trade alongside it.

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## AI: The Blind Spot

Here's the sector where the market may be **most wrong**.

Raymond James' Ed Mills told CNBC: **"What I consistently hear from investors is that the opposition to data centers is really about the political backlash and that after the midterms things get a lot better. But I think that after the midterms, things get worse. That is a huge blind spot for the market"** .

The numbers back him up. **Two out of every three Americans oppose the construction of new data centers** in the U.S., and **57% say AI is a bad thing for society**, according to a Washington Post-ABC News-Ipsos poll. **67% disapprove of Trump's handling of AI** .

A Democratic Congress would have **subpoena power** over AI companies. Sen. Richard Blumenthal has already sought records tied to donations for Trump's White House ballroom from Cisco, Salesforce, ServiceNow, and Kraken. Rep. Jamie Raskin is investigating tariff exclusions .

The AI industry is **hiring lawyers and lobbyists** in anticipation. Meta has acknowledged in its filings that new taxes or regulations could "increase our capital expenditures and operating costs" . If Democrats win both chambers, party elders are readying a **regulation platform** expected to serve as the centerpiece of their legislative agenda .

But there's a limit. Trump retains the veto. Any bold legislation that passes Congress faces a **presidential veto**, and overriding it requires a two-thirds majority that Democrats almost certainly won't have . The realistic outcome isn't a sweeping AI crackdown. It's **gridlock, investigations, and a slower, noisier path** for the AI buildout.

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## Frequently Asked Questions

### What do prediction markets show for the midterms?

Kalshi gives Democrats a **93% chance of winning the House** and a **71% chance of winning the Senate**. Polymarket is similar. A Democratic sweep is priced at roughly **64% to 70%** .

### Which sectors are most exposed to the election outcome?

**Defense, healthcare, crypto, and AI** are the most policy-sensitive sectors. Defense depends on government contracts. Healthcare depends on Medicaid and drug pricing. Crypto depends on regulatory clarity. AI depends on data center permitting, regulation, and antitrust scrutiny .

### What happens to healthcare stocks if Democrats win?

Hospitals and Medicaid insurers could benefit if Democrats succeed in **delaying or softening Medicaid cuts**. Pharmaceutical companies could face **more pressure on drug prices**. The distinction matters: more healthcare spending doesn't mean higher profits for every healthcare business .

### What happens to crypto stocks if Democrats win?

**Short-term pressure.** The CLARITY Act likely stalls, and crypto-linked stocks face uncertainty over regulation and taxation. But the SEC and CFTC remain under Republican leadership, which can provide administrative clarity. Bitcoin may fall less than crypto stocks because it's less tied to U.S. regulatory outcomes .

### Why is AI the biggest blind spot?

Because investors are **underestimating the political backlash**. Public opposition to data centers is growing, and a Democratic Congress would have subpoena power to investigate AI companies. Raymond James' Ed Mills warned that "after the midterms, things get worse" for AI—a view he says is a "huge blind spot for the market" .

### Will a Democratic Congress actually pass new AI or crypto laws?

**Probably not.** Trump holds the veto, and overriding it requires a two-thirds majority. The realistic outcome is **gridlock, investigations, and administrative guidance**—not sweeping new legislation. The noise will be loud, but the laws may not change much .

### What's the historical pattern for stocks after midterms?

Under a Republican president with a divided Congress, the S&P 500 has gained an average of **23% in the year after midterms**, according to Morgan Stanley. With Democrats controlling both chambers, the average gain was **15%** . But Morgan Stanley's Ariana Salvatore cautioned: **"We don't think that blueprint holds up this time around"** .

### What should I watch on election night?

**The Senate races in Texas, Ohio, Iowa, Kansas, and Maine.** If Democrats win any of those, it signals a wave that could reshape the policy landscape. Also watch the **governors' races in Texas and Ohio**—those states are major data center hubs, and the outcomes could affect AI infrastructure at the state level .

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## The Path Forward: What to Watch

### The House and Senate Outcomes

The immediate catalyst. A narrow Democratic victory is the base case. A sweep is the tail risk. A Republican hold is the surprise that would force markets to reprice .

### The Lame-Duck Session

Before the new Congress is seated, there's a **December 11 funding deadline**. If Democrats win the House, they may use the budget negotiations to extract concessions—and a government shutdown is a real risk .

### The Investigations

Watch for **subpoenas and committee hearings** targeting AI companies, crypto firms, and government contractors. The noise will start early in the new year.

### The Veto Pen

Trump's veto is the backstop. Any legislation that reaches his desk faces almost certain rejection. The real policy changes will come through **executive agencies**, not Congress.

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## Conclusion: The Election Changes the Noise, Not the Trajectory

Here's what I want you to take away from tomorrow's vote.

The midterms won't stop the AI boom. They won't end the defense budget. They won't kill crypto. They won't repeal Medicaid cuts. The structural forces driving those sectors are too large, and the president's veto is too powerful.

But the election **will change the noise**. A Democratic Congress means subpoenas, hearings, and headlines. It means more scrutiny of data centers, more pressure on drug prices, and more uncertainty for crypto. It means the companies that depend on Washington will spend more time defending themselves and less time executing.

For American investors, the message is simple: **don't trade the outcome. Trade the surprise**. The market has already priced in a Democratic victory. The risk is in what happens if the polls are wrong—or if the result takes weeks to resolve .

The election ends tomorrow. The policy fights are just beginning.

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## Disclaimer

This article is for informational purposes only and does not constitute financial advice, investment advice, or a recommendation to buy or sell any securities. The author is not a licensed financial advisor. All investments involve risk, including the potential loss of principal. Past performance does not guarantee future results. Readers should conduct their own research and consult with a qualified financial professional before making any investment decisions. Data and figures cited are accurate as of the date of publication but may change. The author holds no position in any securities mentioned.

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