LIVE MARKETS-For markets, bond yields may matter more than midterms 

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FOR MARKETS, BOND YIELDS MAY MATTER MORE THAN MIDTERMS

With the 2026 midterm election approaching, strategists at the Leuthold Group argue investors should pay closer attention to Treasury yields than the election outcome itself.

In a note earlier this month, Chun Wang, director of multi-asset strategies at Leuthold, said stocks have historically performed well after midterm elections, particularly under divided government. A Republican president paired with a Democratic Congress has often been a favorable backdrop because it reduces the likelihood of major policy shifts.

But Wang argued 2026 looks more like the last two midterm cycles than the historical average. Both 2018 and 2022 were driven largely by Federal Reserve tightening, and this year's market path has closely resembled those episodes.

That is especially evident in the bond market. Rather than falling ahead of the election, as has typically been the case in past midterm years, 10-year Treasury yields have climbed sharply. Wang attributed the move to persistent inflation, large fiscal deficits, heavy Treasury issuance, AI-related borrowing and elevated oil prices.

Still, Leuthold sees a potential silver lining. If 2018 and 2022 are the more relevant precedents, long-term yields could be nearing a peak, potentially providing relief across asset classes.

The firm's broader outlook remains constructive for equities after the election. However, Wang cautioned that the macro backdrop remains unusually complex and that long-term interest rates, not politics, are likely to remain the key force shaping markets in the months ahead.

(Terence Gabriel)

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