The Democratic mid-term wave has triggered a strong upward move in both stocks and bonds today. The stock move puts the fourth quarter back into the black, building on prior 2026 gains, while the bond move builds on a fourth quarter rally that has essentially erased the steep losses characterizing the year’s first nine months.
Markets often rally when uncertainty is reduced, and x-factors solved, and that certainly is the case here, even if the path forward is anything but certain. There may also be a measure of relief that the decisiveness of the election seemingly removes any chance the results could be contested (recall that in 2020 Joe Biden was not declared the winner until the following Saturday).
In terms of how markets do under each party, returns have been quite a bit better under Democratic presidents than Republican ones – something around 15% vs. 9.5% over the last hundred years. But bringing in the Congressional component, returns under Democratic presidents have been enhanced by divided government (such as in the later 1990s), while Republican presidents have seen better returns historically with unified control. Of course, past is not necessarily prologue in this game.
As we noted in the October commentary, there is no major piece of legislation hanging in the balance, with President Trump’s signature Big Beautiful Bill passed in 2025. And Trump keeps his current Congress for the next two months. Democrats may seek to restore some of the health care cuts that came with that bill, but how this will be maneuvered, and when, remains to be seen.
More likely, we will see stronger pushes to moderate AI capital projects and large data center construction. Texas is a major AI build-out state (The Wall Street Journal notes that it is home to 25% of data center projects planned through 2030) and governor-elect Regina Hinojosa has called for a moratorium until communities are given a stronger voice. Similar dynamics are at play in Ohio and Georgia, where Amy Acton and Keisha Lance Bottoms, respectively, both backed construction checks in their campaigns.
We also noted in our earlier commentary our thought that a party power switch might motivate a wind-down in the Iran campaign, and also create new constraints on war funding. Hostilities continue in Persian Gulf and politics may not be the driver, but J.D. Vance and Trump himself have both cited the war as the key factor in their party’s defeat. This suggests that the will and mandate simply may not be there, but again, other factors will always be at play.
We continue to be essentially fully invested in guideline and typical client portfolios. As always, we keep the longer term objective predominantly in mind, and stress the importance and advantages in diversification.
We’ll be back as events dictate, but in the meantime please let us know if you have questions or concerns.
David S. Beckwith, CFA®
Chief Investment Officer