The U.S. midterm elections are approaching, and this is Goldman Sachs' trading guide.

Go long on healthcare and renewable energy, go short on large pharmaceutical companies, defense, and cryptocurrencies, and maintain a cautious stance on the AI infrastructure sector.

Author: Bu Shuqing, Wall Street See

As the U.S. midterm elections approach, bets in prediction markets on a sweeping Democratic victory continue to heat up, and Goldman Sachs has already prepared a complete trading playbook for it.

According to market tracker data, prediction markets currently price the probability of Democrats achieving a "sweep" of both chambers at 67%. Goldman Sachs' core trading logic is: go long healthcare and renewable energy, short large pharmaceutical companies, defense, and cryptocurrencies, and maintain a cautious stance on the AI infrastructure sector. Notably, the underlying logic of this strategy is not betting on which legislation Democrats can push through, but rather judging which industries will suddenly become Washington's regulatory targets.

Against the broader market backdrop, whether the Nasdaq 100 Index (NDX) can use the election results to break out of its months-long trading range is also a focus for investors. As analyst King Callahan put it, NDX is currently in a state of "running hard but standing still."

AI Infrastructure: Who Pays Becomes a Political Issue

The AI trade is facing a new political variable: electricity bills.

Democrats advocate protecting household users from soaring power costs, which could force data centers to bear more infrastructure construction costs. The focus of the issue is no longer whether the U.S. needs more AI infrastructure, but who should pay for it.

Goldman Sachs' recommendation is: go long renewable energy and grid infrastructure, while buying protective positions in hyperscale cloud service providers and data center equipment.

Healthcare: Long ACA Beneficiaries, Short Pharmaceutical Companies

Democrats intend to revive Affordable Care Act (ACA) subsidies, a move expected to increase patient visits and reduce the uncompensated care burden on healthcare providers, which is positive for the healthcare sector.

However, the other side of the coin is more aggressive drug price negotiation policies, with large pharmaceutical companies bearing the brunt.

Goldman Sachs' operational recommendation is concise and clear: go long ACA beneficiaries, short pharmaceutical manufacturers.

Government Spending: Non-Defense Areas Benefit, Defense Stocks Under Pressure

Democrats have historically advocated expanding the defense budget while simultaneously increasing domestic spending.

Goldman Sachs believes there is upside for beneficiaries of government contractors, research institutions, and healthcare-related spending, while stocks with large defense exposure may face relative pressure.

Goldman Sachs recommends: go long beneficiaries of non-defense government spending, short defense beneficiary stocks.

Wall Street Meets Washington: Regulatory Pressure Returns in Full Force

A Democratic victory means Washington's attitude toward business will harden.

Goldman Sachs offers short recommendations across multiple areas: for large tech stocks, antitrust enforcement will return to the agenda; for investment banks and cryptocurrencies, the number of regulators will increase and friendly faces will decrease; for tariff-sensitive stocks, Goldman Sachs points out that investors should not expect Democrats to bail out such stocks—in fact, Goldman Sachs expects tariffs to have more upside than downside through early 2027.

Homebuilders: Housing Affordability Provides Policy Support

Housing affordability has consistently been a political priority for both parties. Expanding housing tax credits and first-time homebuyer incentives is expected to provide support for the homebuilder sector. Judging from the relative performance of the homebuilder index versus the equal-weighted S&P 500 index, the sector has a relative advantage.

Goldman Sachs recommends: go long homebuilders.

Corporate Tax Rate: Limited Near-Term Impact, Long-Term Risks Remain

On the tax issue, Goldman Sachs' position is relatively moderate. Since Trump retains veto power and the 21% corporate tax rate has become a permanent provision, Goldman Sachs believes the immediate risk to corporate earnings in 2027-2028 is limited.

However, looking further ahead, companies facing higher tax rates may face a less friendly valuation environment.

Goldman Sachs' conclusion is: the tax bill can wait, but the market does not have to.