Today marks the first major election of Trump's term! The market will receive important data to predict the landscape of next year's U.S. "midterm" elections.

Today marks the first major electoral test in Trump’s second term, with its results set to provide investors and markets with key data on the direction of the US political landscape. From Virginia to California, a series of state and local elections are not only a midterm public opinion test for the incumbent Republican administration but also expose deep policy divisions within the Democratic Party. The final outcome will offer the earliest and strongest clues for anticipating possible trends in the 2026 midterm elections.

Voters are heading to the polls to choose the governors of Virginia and New Jersey, the mayor of New York City, and to vote on a key proposition in California. These elections take place as the US federal government shutdown enters its sixth week, with issues like the economy, living costs, and immigration forming the core battlegrounds for candidates.

Of particular note is the New York City mayoral race, where self-described "democratic socialist" Zohran Mamdani is leading in the polls, and his campaign platform has sparked concern on Wall Street. In a rare cross-party move, Trump has intervened to support independent candidate and former governor Andrew Cuomo, threatening to potentially cut federal funding to New York City if Mamdani wins. This development adds new uncertainty to the markets.

Surging voter turnout indicates voters’ strong interest in these elections. According to AP statistics, as of Monday Virginia had cast over 1.4 million ballots, and New Jersey more than 1.3 million. In New York City, early voting numbers already exceed previous years’ levels, highlighting the unusual enthusiasm for this “anti-establishment year” election.

Virginia & New Jersey: Litmus Test for Both Parties’ Bases

As a traditional bellwether for midterms, the Virginia gubernatorial race is drawing significant attention. Historical data show that in the past 12 elections, 11 have gone to the party opposing the sitting president. This time, former CIA officer and three-term congresswoman Abigail Spanberger runs as the Democratic candidate, holding a temporary lead over Republican incumbent Lieutenant Governor Winsome Earle-Sears.

According to Bloomberg, Spanberger is focusing her campaign on the state’s economy and the ongoing federal government shutdown, which has caused thousands of federal employees in Virginia to miss paychecks. Earle-Sears is following the same strategy that helped former governor Glenn Youngkin win four years ago, focusing on immigration and "parental rights."

In New Jersey, Democrats hope to retain the governorship, but Republican support in the state has rebounded. Congresswoman, former Navy veteran, and prosecutor Mikie Sherrill faces off against former state legislator Jack Ciattarelli. The contest is seen as key to testing whether Trump’s political alliance can remain solid even without Trump himself on the ballot. Ciattarelli has Trump’s backing and advocates for tax cuts and lower energy costs, while Sherrill emphasizes transportation funding and child care.

New York Mayoral Race: Wall Street Eyes the “Battle of Policy Directions”

The New York City election highlights ideological divisions within the Democratic Party. Zohran Mamdani, a 34-year-old state legislator and self-proclaimed “democratic socialist,” beat former governor Andrew Cuomo in the primaries and is poised to win the mayoral seat. Mamdani has centered his campaign on housing costs and economic inequality, causing unease on Wall Street and deepening fractures among Democratic leadership.

According to Reuters, Trump has deeply involved himself in the race, calling Mamdani a “communist” and “a total failure,” while publicly supporting the independent candidate Cuomo and warning that if Mamdani wins, he is “very likely not to provide federal funding to my beloved first hometown.”

Facing Trump’s pressure, Mamdani told voters that voting for Cuomo was tantamount to voting for Trump. This election is about more than just New York’s leadership; it is seen as a critical decision point for the Democratic Party’s future direction, potentially impacting its performance in next year’s midterms.

The Bigger Chessboard: California Redistricting & Federal Shutdown

In California, Governor Gavin Newsom is testing his political influence with a ballot initiative called “Proposition 50.” The measure aims to temporarily suspend the state’s independent redistricting commission to draw new congressional maps favoring Democrats. This move is intended to counter Republican gerrymandering in states like Texas, which may yield more House seats for the GOP. State documents show Newsom and his allies have raised more than $120 million in support of the proposal.

For both parties, these 2026 midterm “warm-ups” are battles not just over numbers but for messaging. On the Democratic side, former President Obama has returned to campaign, trying to frame the elections as a referendum on Trump’s power and a public vote on rising prices.

All of these elections are taking place under the shadow of a federal government shutdown. According to Bloomberg, the government closure, triggered by federal spending cuts, is on the verge of breaking the record for the longest in US history, forcing hundreds of thousands of federal employees into furlough and slowing the release of economic data. Economists warn that if the deadlock continues, its drag on economic growth could last all year.

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