EW summary Oct 2026 (002)

13 October 2026 Chief Investment Office GWM Investment Research

Election Watch 2026 Foreign capitals, state capitols: Executive summary

The 2026 midterms are likely to produce a divided government. Our base case is a narrow Democratic sweep of Congress (50% probability), though a split Congress remains almost as likely (40%). Either outcome would make major legislation harder to pass, heightening the importance of executive actions and regulatory policy. A divided government would also shift congressio- nal focus toward spending bills, debt-limit negotiations, confirmations, and oversight.

Foreign capitals State capitols The midterms may increase policy uncertainty and market vol- While federal races often dominate the spotlight, gubernatorial atility abroad, but regional fundamentals—including earnings, elections also help shape the US policy landscape. In 2026, vot- inflation, energy prices, AI investment, and domestic policy— ers in 36 states, three territories, and Washington, D.C. will are likely to remain the more important drivers of investment elect their next chief executives, influencing how federal priori- outcomes. The consequences, however, will likely vary by re- ties and programs are implemented across states and territories. gion. Asia-Pacific is exposed to tariffs, export controls, AI poli- These contests come at a pivotal moment, as states prepare for cy, and defense commitments. For Europe, the main consider- federal cuts to Medicaid and other social programs that are set ations are a firmer US stance on China’s growing export to take effect in 2027 under the One Big Beautiful Bill Act. At surplus, higher defense spending commitments, and increased the same time, as Congress continues to debate data center borrowing costs associated with rising US Treasury yields. regulation, many states are moving ahead with policies of their Switzerland is exposed through trade and currency channels, own, creating a patchwork of approaches that could affect while emerging markets are affected by trade, immigration, both economic development and government finances. remittances, and global financial conditions. Canada’s outlook remains tied to the review of the US-Mexico-Canada (USMCA) Federal transfers to governments steady but expect agreement and ongoing trade uncertainty. declines Federal transfers to state and local governments, in USD millions, and state & Mexico and China will be tracking the US midterms local government spending as a share of total federal budget, in % closely Top five trading partners by total trade, in USD bn 20 1,400

Federal transfers to state and local governments (rhs) Mexico Canada China Japan Germany State and local government as a share of total federal budget (lhs) Exports Imports Source: OMB, Historical Tables, Budget of the United States Government, Fiscal Year 2027, Source: Bloomberg, UBS, as of September 2026 UBS, as of 1 October 2026

Read the full report, “Foreign capitals, state capitols,” to ex- plore how global perspectives and state-level developments UBS Road to the Midterm Elections may help shape the 2026 election landscape. In this series, we sit down with research analysts and political experts This report has been prepared by UBS Financial Services Inc. (UBS FS). to examine key election topics. Please see the important disclaimers at the end of the document.

Executive summary | Election Watch 2026 1 of 3

Important Information and Disclosures UBS Chief Investment Office’s (“CIO”) investment views are prepared and published by the Global Wealth Management business of UBS Switzerland AG (regulated by FINMA in Switzerland) or its affiliates (“UBS”), part of UBS Group AG (“UBS Group”). UBS Group includes former Credit Suisse AG, its subsidiaries, branches and affiliates. The investment views have been prepared in accordance with legal requirements designed to promote the independence of investment research.

Generic investment research – Risk information: This publication is for your information only and is not intended as an offer, or a solicitation of an offer, to buy or sell any invest- ment or other specific product. The analysis contained herein does not constitute a personal…