Stocks of targeted companies historically drop on news of a congressional probe

Certain companies soon could be dealing with new congressional inquiries.

With Democrats appearing on track to take control of at least one chamber of Congress in next month's midterm elections, many companies soon could be dealing with extra attention - and not the kind that lifts stock prices.

Law and lobbying firms in Washington, D.C., are telling companies to prepare for a new level of scrutiny, since most modern midterm elections result in some loss of congressional control for the party that holds the White House.

"With a change in control of Congress, congressional committees will have new leadership, ramp up their investigations and conduct aggressive oversight on every industry," one such firm, BakerHostetler, said in a recent notice on its website.

"Clients and potential clients who believe they may be pulled into an investigation should act now and contact their attorneys to begin laying the groundwork for a coordinated response and identify potential defensive strategies and opportunities to advance their narrative," the firm said.

Below are some key types of companies that could end up facing high-profile hearings on Capitol Hill, congressional investigations or other types of inquiries.

AI labs, oil companies

Concerns about artificial intelligence and affordability are likely to drive some Democratic lawmakers' investigations, according to Evercore ISI analysts led by Sarah Bianchi.

AI labs such Anthropic, OpenAI and Google (GOOG) (GOOG) Gemini could have trouble if such probes reveal "additional information about hacking, models breaking containment, or internal emails acknowledging AI safety challenges," the analysts said in a recent note.

Meanwhile, Democrats could put a spotlight on oil executives if the Iran war drags on and gasoline and diesel prices remain elevated, and that may reignite conversations around a windfall-profits tax or measures to lower prices, the Evercore team said.

Drug companies, prison operators

"Once armed with committee gavels and subpoena power, Democrats are likely to target Big Pharma for scrutiny," Andrew Lokay, a senior research analysts at Beacon Policy Advisors, said in a recent note.

That's because 17 big pharmaceutical companies made drug-pricing deals with the Trump administration, and Democratic lawmakers have argued that more details about those deals need to be released.

A Democratic-run House or Senate also is likely to take aim at companies that have contracts with the Department of Homeland Security or that facilitate the detention or deportation of immigrants, as the opposition party makes an effort to challenge President Donald Trump's immigration policies, Lokay said. Private-prison operators GEO Group (GEO) and CoreCivic $(CXW)$ - which both saw their stocks surge when Trump won the 2024 White House race - are examples of such companies.

Sellers of equity stakes, ballroom donors

Companies that have granted equity stakes to the Trump administration - such as Intel (INTC), MP Materials (MP) and USA Rare Earth (USAR) - along with companies that are connected to Trump family businesses, are likely targets for investigation, the Evercore analysts said.

The analysts said companies that have donated to Trump's controversial White House ballroom project could see probes as well. Amazon (AMZN), Apple (AAPL) and Meta (META) are among the corporate donors to that project.

The Democratic lawmaker who is expected to chair the House Oversight Committee if his party wins control of the House - Rep. Robert Garcia of California - already has been criticizing ballroom donors. A year ago, Garcia co-sponsored a bill that was called the Stop Ballroom Bribery Act.

Do the selloffs usually last?

Stocks of targeted companies historically have dropped when a congressional probe is announced, but the shares then rally on the day of a Capitol Hill hearing, according to the Evercore analysts.

"This happens because the stocks fall on the initial announcement of an investigation and rise once investors realize that Congress is not unified or there is no imminent credible government action," they said.

While that's the usual reaction, there are exceptions. Hearings "tend to be risky events when direct earnings-related information comes out or there is evidence of unity and possible government action," the Evercore team said.

-Victor Reklaitis