These Stocks Could Be the Biggest Winners of the 2026 Midterms

Key Points

• Defense, healthcare, and financial stocks are showing strength ahead of the U.S. midterm elections.
• Investors are focusing on policy-sensitive sectors as markets price in shifting congressional power dynamics.
• Historical data suggests midterm election years can create outsized opportunities in select sectors.

The midterm elections in the United States are still six months away, but there are many stocks that are getting a boost. Elections have consequences for policy initiatives, and that’s particularly true for midterm elections.

S&P Dow Jones research shows that for mid- and small-cap companies, cross-sector effects in congressional election months were greater than average 83% of the time in months with only congressional elections, outpacing presidential election months at 67%. This suggests midterms may actually be more disruptive to sector relationships than presidential elections, even if they receive less attention.

The reason is obvious and becoming amplified as the extremes of both parties hold greater sway. Specific to this November, if the party out of power wins control of both houses of Congress, investors should expect a very different set of policy priorities. Conversely, if the status quo remains, there will be more of what’s been in place in the last two years.

Politics Matters Less Than the Macro Story

But that’s not necessarily what the markets are showing. That’s a good reminder that the stock market is not the economy, but that economic fundamentals shape the market more than election outcomes do. With the midterm elections looming, issues like inflation, GDP growth, and geopolitical tensions may carry more weight for investors.

This is why it’s always important to remember that markets are forward-looking. Short-term momentum plays a role for sure. But in many cases, when investors see a stock or an entire sector moving higher or lower, they should take out their crystal ball, because that’s what the big money is doing. Before stepping away for summer activities, it may be time to consider taking, or adding to, a position in these securities.

LMT and RTX Don't Have to Be an Either/Or Decision

Even if the kinetic part of the conflict with Iran is over, the first half of 2026 has illustrated the likelihood that more will be spent on defense. Investors often frame Lockheed Martin NYSE: LMT and RTX NYSE: RTX as an either/or choice. However, at a time when the Pentagon is accelerating toward autonomous systems and AI-powered warfare, the case for holding both is worth considering.

The proposed fiscal 2026 (FY2026) Defense Department budget allocates over $13 billion to autonomy and AI initiatives alone. This is a signal that the spending battle isn't just about legacy procurement. Both companies are positioning for this transition, but through different paths.

Lockheed's argument centers on upgrading legacy hardware into next-generation capability. The company is embedding AI and autonomous capabilities into its world-leading platforms, making them intelligent nodes in a networked battlefield. It is also developing advanced technologies, including hypersonics and directed energy weapons. The approach is slower but carries lower risk because the company’s existing technology is deeply embedded in existing government contracts.

RTX is moving faster on autonomy. The company partnered with Shield AI to field the first operational weapon powered by Networked Collaborative Autonomy, integrating autonomous capabilities into loitering munitions and sensors—fully funded by the companies themselves, without government investment.

That private-capital commitment signals real conviction in where defense spending is heading.

Politically, defense budgets don't contract dramatically after midterm power shifts. Either outcome in November keeps the contracts already on the books intact.

The question isn't which company wins the next-gen transition, but how much of the pie they get.

Nobody Agrees on This Midterm Play—Which Makes It Worth Watching

Healthcare is the third rail of American politics, and every two years the market has to price in what might actually change. But it’s that tension that creates an opportunity for broad exposure in the Health Care Select SPDR Fund NYSEARCA: XLV.

In midterm election years from 1994 to 2024, healthcare outperformed the S&P 500 by an average of nearly 17%. And yet the sector is currently lagging. The XLV is down about 5% year-to-date, weighed down by drug-pricing uncertainty and managed-care earnings pressure.

That said, the demographic case is unambiguous. An aging population means structural increases in demand for healthcare products and services, ranging from pharmaceuticals and managed care to medical devices and biotech. That demand doesn't change based on election outcomes.

But the political case is messy. Healthcare costs figured prominently in the first year of Trump's second term and will likely play an even bigger role heading into the 2026 midterms, with tax legislation cutting more than $1 trillion from health insurance spending over a decade—mostly Medicaid—to help fund broader tax cuts. ACA subsidy reinstatement and drug pricing reform are live issues on both sides of the aisle.

That gap between historical patterns and current performance sets up the opportunity. Healthcare costs are a genuine budget problem for both parties. That means neither side can afford to crater the sector, only reshape it. For an investor with a six-month horizon and tolerance for policy noise, the entry point today may look a lot better come November.

Agnostic to Interest Rates? Not Quite.

Interest rates will be on the front burner between now and the midterm elections. The CME FedWatch Tool now puts the odds of an October interest rate hike at around 21%. That’s driving interest in funds such as the Financial Select Sector SPDR Fund NYSEARCA: XLF.

That follows conventional wisdom: rising rates are good for banks, while falling rates compress margins. That framework is mostly right. Financial stocks aren't truly agnostic, but they're less about the absolute level and more about the spread. As the 10-year Treasury yield curve normalizes, net interest margins should improve for regional lenders, while digital asset integration and agentic AI adoption are opening new avenues for efficiency and revenue for larger institutions.

It also partly explains XLF's rough start in 2026. The fund is trading nearly 13% below its 52-week high, and financials have been the S&P 500's worst-performing sector year to date.

That said, financials' sensitivity to policy may matter more than rates as we approach November. From the onset of Trump's second term, expectations ran high for additional financial deregulation (i.e., a further dismantling of Dodd-Frank provisions and the CFPB). A Democratic House takeover puts tighter capital requirements and reinstated consumer protections back on the table.