Market Note: November 5, 2026

The political and economic environments around each U.S. election have obviously varied, but there have been other common patterns. Midterm elections have tended to act as a ‘reversal’ of sorts to Presidential elections two years prior, as polling has shown leaders frequently becoming less popular over time. (The Presidential party in power has gained seats in the House in only 3 midterms since 1906. Also, this was only the 6^th time since 1910 where the President’s party had controlled and then lost both chambers, the last time being in 2006.) Voter turnout for midterms has also tended to be historically lower than in Presidential elections (roughly 45% compared to 60%, per data from the Carlyle Group). Though, campaign contribution amounts also continued to set records.

Up until election day, polling continued to show that key issues across supporters of both parties were: the state of the economy (although good, voter perceptions have been less rosy), inflation/cost of living, and general affordability. Other issues such as healthcare, immigration, education, and corruption/fraud, have come in secondary, being somewhat party-dependent. Despite stock market sensitivity to the issue and campaign headlines, artificial intelligence and data centers fell well below many other issues of concern, being one of primarily local interest.

The final tally showed Democrats re-taking the House (as expected, albeit by a wider margin than predicted) and the Senate (which had been seen as a bit of a toss-up). Financial markets have tended to be accepting of split government due to the lower likelihood of major legislation coming through that could disrupt the status quo or shake economic growth trends. While it could be possible to see bills pass without bi-partisan support, the Presidential veto remains a strong constraint, with a two-thirds override back through the two chambers being a high hurdle. Though, the Presidential executive order remains a tool and has been used in recent decades by an increasing degree. Interestingly, a Democratic majority also may lessen the impact from the far-left factions of the party, such as those self-identifying as socialists, as their votes are less critical with a larger pool of moderate members.

Most immediately, government spending authority expires in mid-December, so a lame duck session passage of a bill of some sort would be required. The Federal debt limit looks likely to be reached again by Q1-2027, with other resources able to be tapped until late summer/early fall 2027, upon which the limit will need to be raised. The Iran War has been contentious, which spending restrictions could target.

Looking ahead, as more bi-partisan negotiation will likely be required, government spending is likely to rise regardless. For example, potential Republican calls for higher defense spending could be now matched by demands by Democrats for higher outlays toward other programs, such as reinstating expanded ACA healthcare subsidies or reversing other earlier spending cuts. Democrats could show interest in rolling back some tariffs, perhaps more selectively than broadly, particularly against trading partners like Canada. However, widespread tariff rollbacks assumed during the Biden administration didn’t occur to the degree expected.

Affordability has been arguably the most important issue in the election, but politicians have few tools to immediately address it. Indirectly, legislative actions toward limiting the scope of the Iran war could lower oil prices (and more widely-used derivatives such as gasoline, diesel, and jet fuel), which have contributed to input costs most recently.

On a bi-partisan front, AI regulation does appear to be a point of some agreement, although issues remain of what would be regulated (and how, perhaps via basic oversight and/or self-testing). As mentioned, data centers have been in the news, but building location has been more of a state/local issue than a national one, but has been especially contentious in states like Texas. A national AI data center moratorium appears less likely, due to the vote composition and high veto likelihood. However, on the other side, there’s a desire to not dampen innovation in AI too much, for fear of cutting it off as a source of recent strong economic growth as well as strategically losing ground to China and others, putting the U.S. in a less competitive and more vulnerable position.

Historically, a key investing tenet has been that financial markets prefer certainty to uncertainty, even if the news is seen as less positive from a financial, economic, regulatory, or tax perspective. So, the removal of an unknown (election results) has often been taken as a positive. (This was verified by early Wed. trading, although it appears concerns over AI regulation/building have dominated today’s sentiment.) And, as noted, a split congress has often been interpreted as a theme of ‘nothing dramatic getting done’ for the next two years. Again, perhaps counterintuitively, the lack of action removes potential uncertainty compared to more polarizing policies that run the risk of being reversed if the party in power were to flip again.

From an investment market perspective, the weeks leading up to a midterm have tended to be volatile historically. That’s been the case here to some extent, in addition to the post-election days this week. Past performance is not an indicator of future results, of course, but since 1950, every 12-month period following a midterm has been positive for the S&P, with a total return of over 18%, which is close to twice the long-term average for stocks, as markets have routinely continued to get past short-term issues and climb the proverbial ‘wall of worry.’

Ryan M. Long, CFA

Director of Investments

Palouse Capital Management

Sources: Capital Group, CME Group, Morningstar, FocusPoint Solutions calculations.

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Centered Financial, LLC is a registered investment adviser offering advisory services in the State of California, Utah, Texas and in other jurisdictions where exempted. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no assurance that the techniques, strategies, or investments discussed are suitable for all investors or will yield positive outcomes. To determine which strategies or investment(s) may be appropriate for you, consult your financial adviser prior to investing. Any discussion of strategies related to tax or legal planning is general and is not intended as tax or legal advice. Please consult appropriate tax and legal professionals for recommendations pertaining to your specific situation. 

Sources: Ryan M. Long, CFA; Director of Investments; Palouse Capital Management

Pending as of this month, the FocusPoint Solutions investment division is being rebranded under the affiliated firm Palouse Capital Management, as part of the merger with Wealth Enhancement Group. The decades-long investment philosophy, process, and strategies remain unchanged.

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