As a citizen, it is impossible to ignore the results of last week’s election. The electorate sent a pretty clear message that they are not happy with the direction the Trump administration has taken the country over the last two years. One might argue about exactly which policies led to the Republican drubbing last week – exit polls showed that corruption and the cost of living were the crucial issues –  but there is no doubt about the target of voter’s ire. And that is an important distinction because this was not so much a vote for something as against something. Voters were angry – 75% expressed dissatisfaction with the direction of the country – and I doubt most were seriously contemplating competing government policies in the voting booth. 

As an investor, on the other hand, it is impossible to ignore the fact that not much changed last week. Democrats gained a large majority in Congress but they are not going to make any major changes to economic policy because they can’t. They will not have the votes to override a veto on most issues, although I suspect some Republicans are about to find the spine they misplaced two years ago; 40% of Republican voters said that Congress has not done enough to check the presidency. I would also not expect a big change in foreign policy anytime soon; the Iran War did not get easier to resolve just because we changed the chairman of the Senate Foreign Relations committee. Congress can pass a war powers resolution through both chambers of Congress now but that is barely more than performative at this point; good luck enforcing it. 

President Trump also said after the election that he wanted and expected to work with Democrats although I’m in the camp that says be careful what you wish for. It is generally a good idea to clutch your wallet tightly when the two political parties start agreeing on too much. It might be nice, for instance, to see some fiscal sanity in DC but there is nothing so bipartisan as our deficits and debt. President Trump is a self-described “debt guy”  and has proven that in spades during his time in office, giving new meaning to the abbreviations T-bills and T-notes. And Democrats are not exactly pikers when it comes to spending our dollars, so if the two sides agree on a budget, it will be because they both get to borrow and spend more. I, for one, am generally happy with gridlock, the political equivalent of the Hippocratic oath. I know there are things, like healthcare, that are in desperate need of change, but I see no reason to expect the political class to fix what they screwed up. It was, after all, the last reform effort that landed us here, where a 10% annual health care premium hike is a relief.

The political outcome produced quite a bit of movement in markets last week, up and down, but I don’t think we should read too much into it, at least not yet. Stocks ended the week down and bonds were higher but that wasn’t much of a change; interest rates and the NASDAQ peaked a month ago. Safe havens were bid on the week with gold up nearly 5% and the dollar rising as well, but gold is still down 25% since peaking in January and the dollar has been in a gentle uptrend for most of the year. The swings in stocks on Wednesday and Thursday were pretty dramatic, especially in AI-related names, but it is too early to say whether they had any meaning or not. What the election really did was create more uncertainty, which is the opposite of what elections usually do. You can expect to see a lot of articles about how markets perform after the midterms and in the third year of the Presidential cycle (best of the four) in the coming weeks but I don’t think I’d pay much attention to that this year.

For investors there are, as always, a lot of questions about the future. While the election changed a few things – maybe – we are still left with most of the same questions we had before the election. 

  • AI-associated stocks fell sharply but this was the fifth straight week of losses for the semiconductor index. There were, however, some new questions after the election. Voters in 10 states decided 41 local data center measures (although 21 of those were in one state, Ohio), and in nearly every result reported so far, they sided with limits on development. Siting is largely a state and local matter, and the Democrats’ gains weren’t confined to Washington. They now hold a majority of governorships (28 called, two races pending) and a majority of state legislative chambers (51 of 99, after flipping 12, with some races still uncalled). They gained or regained full control of state government in Arizona, Michigan, Minnesota, Nevada, Pennsylvania, and Wisconsin, and built 12 legislative supermajorities. Getting data centers approved is unlikely to get easier; politicians know which way the wind is blowing. If AI usage keeps growing while new capacity is constrained, that will have an obvious impact on pricing, to the benefit of the incumbents like Anthropic and OpenAI, both of whom, coincidentally or not, called for a coordinated global slowdown in frontier AI development earlier this year. Local siting limits are not the coordinated, verifiable slowdown Anthropic described, but close enough for government work. Ironically, the political change, driven at least party by AI anger, may actually end up saving AI from itself.
  • The concerns about AI that preceded the election remain. We still don’t know if AI will pay off sufficiently to justify the investments being made. We don’t know if the bond markets will continue to support further development. We don’t know what companies like Anthropic and OpenAI are really worth. Anthropic’s IPO price seems likely to get marked down but even if goes off at $1 trillion valuation, we have no idea if that makes any sense. I read through the S-1 and question whether the company will ever be able to meet its obligations but I’m not exactly an optimist about AI. A lot of analysts pointed to a 3.6% rise in productivity reported for Q3 as evidence that AI is starting to have an impact, but that’s a stretch. The year-over-year change is 2.1% which is actually lower than the 2.2% average since 2019. 
  • Energy stocks fell over 12% – more than semis or tech more generally – as crude oil fell over 13% on…well, honestly I’m not sure what. I guess traders believe that Democrats can somehow end the war while keeping the Strait of Hormuz open. Or that Democrats will just cut off funding and abandon the Middle East altogether. As appealing as that might seem, it isn’t a serious answer and holds a lot of political risk for Democrats. If the result is even higher oil, gasoline, and diesel prices, guess who gets the blame. Unless the President has a military solution I’m not aware of – and he may – the mess in the Middle East doesn’t seem likely to change for the better anytime soon.
  • Despite the angst in the AI names, the economic outlook did not change significantly. The 10-year Treasury note yield fell 7 basis points, the 10-year TIPS yield was unchanged and inflation expectations fell some. Yield curves barely budged. Credit spreads continued to widen but only a few basis points and while they are moving in the wrong direction, none are at levels where we should start panicking. None of the bond market moves looks to be politically motivated; rates were already well off their October highs before the election.
  • The economic data released last week continued as it has for months, with the economy generally looking healthy with the exception of housing. The employment report was better than expected, job openings rose more than expected, ISM manufacturing and services indexes are both up around 55 with solid new orders and still elevated prices, the trade deficit is still near a record, jobless claims are at generational lows and consumer sentiment is still awful.
  • President Trump is still Tariff Man. I suppose there is the possibility that Republicans in Congress might be more willing to confront Trump on tariffs but enough to override a veto? I have my doubts. There are ongoing trade negotiations between the US and Mexico as part of the review of the USMCA but nothing seems to be happening with Canada. There are various new tariffs scheduled to be implemented in the new year including timber and lumber and furniture (clearly a national security issue). There are also pending “investigations” into “structural excess capacity” covering China, EU, Mexico, Japan, Korea, India and a bunch of other countries. I think we all know how those will come out. 
  • Inflation is still elevated and the Fed is still expected to raise rates in December and maybe further in 2027. The odds for a December hike rose slightly to 76.33% but the odds of another hike next year are all less than 50%. 
  • Current government funding expires on December 11 so expect another fight about that. There will also likely be another debt ceiling fight in late 2027.

As you can see, the election didn’t really change things all that much. We are still going to have a national debate about AI and its impact on the future. I stand by my long time prediction that AI may be significant – or maybe not – but that it will take a lot longer to figure that out than currently expected. We are starting to see companies report some early successes but they tend to be very specific rather than general. Dupont, for instance, says AI has accelerated their R&D pipeline and improved sales and lead generation. Other companies are also reporting gains: JP Morgan noted big savings from automated fraud prevention and Bank of America’s AI assistant (Erica) cut their call volumes by 50% (although it could be that customers have just given up). Novartis’ CEO said on their quarterly call that AI is starting to impact their bottom line although there were few specifics. But the long-term impact of AI and the return on investment is still a giant unknown.

Politics is important to all of us as citizens. And over the very long term, it has an impact on the economy and our investments. But changing the status quo is hard – as it was designed to be in our system – and most of the time investors are best served by ignoring the circus in DC. We have had great leaders in our history. And we’ve had some who aspired to mediocrity – and failed miserably. In my lifetime, we have had double digit inflation and deflation. We’ve had a dollar that crashed and one that soared. We’ve had oil at $10/barrel and $140/barrel. We’ve had a natural gas shortage and today a glut. I’ve seen a dramatic expansion of free trade and now another of our periodic spasms of protectionism. And through it all, investing hasn’t really changed. It isn’t about predicting the next upheaval. It’s about building a portfolio that can withstand whatever the politicians throw at it. It’s about diversification and rebalancing and patience and common sense. 

The 2027 mid-term elections are over, finally. The politicians will now shift to the only thing that matters to them – the next election. My suggestion – for investors and citizens, non-politicans – is to give it a rest. I don’t know about the rest of you but I have come to loathe politics and politicians. Let the Democrats and Republicans go fight their battles while we live our lives, out of the line of fire. Go spend time with your loved ones. Go do something you’ve always wanted to do. The one thing a politician can’t stand is to be ignored. I plan to make their lives as miserable as I can by doing exactly that. And don’t worry about your portfolio. It doesn’t care who controls Congress.