The votes are in, and by all accounts the Democrats outperformed expectations at the Congressional and state level, flipping both the House of Representatives and the Senate and capturing the Governorships of Texas and Ohio. As always, our focus is on the policy implications of the vote for the markets and the economy. A few thoughts on that front…
- President Trump has 2+ years remaining in the White House so any significant legislation passed out of Congress would need his approval – assuming there are not the votes in the Senate to override a Presidential veto (and we don’t think there is). Historically, gridlock has been good for markets.
- US equities are rallying sharply today, likely spurred along by our great nation getting through another election and key parties accepting the results – beyond liking gridlock, markets don’t like uncertainty and election uncertainty is now in the rearview mirror. We would also note oil prices have fallen $11 a barrel from their recent high – per West Texas Intermediate – and the yield on the US 10 Year Note remains under 5% - both should promote consumer and corporate spending.
- As we have called out in other recent notes markets tend to do well 12-months on from election day and we are closing in on year 3 of the presidential cycle, historically the most bullish year for US equites – see below. By all accounts the US economy and US corporate profits are growing above trend – both meaningful positives for stocks into 2027.
Source: Factset, Strategas
- Any pushback on the AI data center build out – for those investors worried about that economic tailwind fading – would likely manifest at the state level, and given election results in some key states for AI infrastructure, that could come to pass. That said, our best guess is that any impact on AI capex would be more of a pumping of the brakes than an outright stopping of the car. And one could argue any slowdown in AI cap ex would likely flatter the free cash flow profiles of the AI hyperscalers, which have recently been under scrutiny.
- Please keep an eye out for a post vote video featuring Orion’s Tim Holland and Mindset’s Steve Pavlick digging into election results and what it all means for Wall Street. That video should be heading your way later today.
Our team will continue to monitor policy developments at the national and state level and relay our thinking around the implications for the economy and US risk assets. For now, we remain optimistic on the US economy and US equities.
Pease reach out with any questions or concerns or if we can support you and your clients in any way.
The Orion Investment Strategy Team
opsresearch@orion.com