I’m sure many of you have been deluged with calls from clients wondering what they should do (or not do) in the wake of the Democratic Party’s outsize gains during the recent midterm elections.
Sure, there has been plenty of market volatility and more down days than up days as we go to press. On the surface, the party associated with more regulation, higher taxes and more equal distribution of wealth would seem to be a drag on the markets in general and the artificial intelligence trade in particular. But history shows the market usually prefers divided government: one party in charge of the White House and the other holding at least one house of Congress.
Have We Seen This Movie Before?
Going back over the last 10 midterm elections and the last five presidential elections that left no single party in charge of both the White House and Congress, one-year returns were positive in 14 out of 15 cases, with an average one-year gain of 15%. That’s far above the market’s 10.2% long-term annual rate of return (dividends reinvested) and well ahead of the 11.5% one-year return after elections that result in single-party control.
As was the case before the midterms, Fed policy, earnings and the AI trade may matter more than the newly tilted House and Senate. Elections do not just change who sits in which chair. They change who gets paid, who gets protected and who gets scrutinized for prior actions.
Many political commentators believe the real difference between Left vs. Right, and Red vs. Blue, is simple. Blue is primarily about power, because that is where the money comes from. Red is primarily about money. The money gives them power. Same glass; it just depends on which side you drink from. I’ve heard it said that Red likes to be out of power because they get paid to influence it. And make no mistake, the lobbyist class is largely Red.
Here’s my take on the most likely future outcomes for the U.S., but, of course, nothing is certain. No one has been able to consistently predict the future direction of the financial markets and economy.
At Home: Your Wallet and Your Border
Energy. Expect gasoline prices, specifically diesel fuel prices, to drop. This was a key Blue campaign promise. Diesel hit $6 a gallon for the first time ever due to the war in Iran. The question is, how will they do that, and how long will it take?
Tariffs. Expect Congress to curtail or restrict the executive branch’s tariff authority. The power side and the money side will find common ground to exert control over the president. The Supreme Court already struck down the IEEPA tariffs in February. Auto workers and the American middle class will be left holding the bill.
Immigration. ICE will be defunded. Border Patrol will be severely curtailed. Amnesty will be on the table, leading to no border restrictions (north or south). Come one, come all. The “defund ICE” push has already gained momentum inside the Democratic Party this year.
Surveillance. The surveillance state will expand. A digital identity bill will be part of the Online Privacy Act. When you set out to maximize power, the No. 1 priority is to control how that power can be challenged. “Privacy” will be the label on the box. Identity tracking will be what is inside.
Tech: Regulate, Tax, Control
Artificial intelligence. Blue, in anticipation of a knockout, has been working on legislation to slow AI and introduce government regulations plus more taxes aimed at AI investment. It is also a probable source of revenue for certain members of Congress.
Data Centers. Expect data center expansion and approvals to be put on hold. U.S. Sen. Bernie Sanders (I-Vt.) and U.s. Rep. Alexandria Ocasio-Cortez (D-N.Y.) have already introduced a bill for a nationwide moratorium on new AI data centers. Blue will want to form a federal regulatory sub-agency and a series of fees, mirroring the Consumer Financial Protection Bureau.
Silicon Valley will turn Blue again. Money follows power. Big Tech was already working to repair its relationship with Democrats ahead of this election.
Cryptocurrency regulation and creation of a U.S. digital currency standard are on the table. Remember U.S. Sen. Elizabeth Warren (D-Mass.), who fought the GENIUS Act stablecoin bill? Decentralized money is the enemy of centralized power, so crypto must be brought inside the big tent.
Starlink. It is not out of the realm of possibility that Starlink will be nationalized. This is payback for the Ukraine vulnerability, which cannot be allowed to happen again. Remember 2022 when Elon Musk refused Ukraine’s request to activate Starlink near Crimea.
SpaceX. Congress will impose an additional layer of federal oversight and regulation on SpaceX. This is intended to punish Musk for his role in DOGE. House Democrats have already opened conflict-of-interest probes into SpaceX’s NASA contracts.
Abroad: The Winners Collect
NATO and Europe. U.S. NATO Stabilization Act and European Strategic Defense spending bill likely for 2027. NATO allies already pledged in 2025 to raise defense spending to 5% of GDP.
Russia and Ukraine. Russia will be free to act more aggressively toward Ukraine with Trumpian limitations removed. Russia will also align more with Africa, China and Saudi Arabia interests. Zelenskyy gets a friendlier Congress. Putin gets a weaker deterrent.
China and Canada. China will speed up investments into Canada. Carney already moved to reset trade ties with Beijing in January. The “middle powers” gain room to maneuver while Washington turns inward and fights itself.
The Red Response
The professional Republicans will promote DeSantis again over JD Vance or Marco Rubio. The donor class wants a candidate beholden to them, and the consultants want a politician they can control and bill. DeSantis is playing coy, saying “we’ll see” about another run.
What It All Adds Up To
Put these outcomes side by side, and a pattern emerges. New agencies. New fees. New taxes and new oversight layers sitting atop the companies that actually produce energy, compute and launch capacity. Borders loosened. Executive leverage removed. Surveillance expanded under neutral-sounding names.
Together they describe a transfer of power to the people who want power and of money to the people who want money. The ones in between, the auto worker, the middle-class family, the entrepreneur who built something real, get the bill and lose the vote. I could be wrong on the timing of some of this. I do not think I am wrong about the direction. Read the baseline again, then watch the next 12 months. Keep score.
Storm clouds may be looming on the horizon, but we’ve been through tougher times before. Remind clients that investors who keep their cool, maintain diversification and stick to their plan during times of stress are rewarded for their patience and discipline. I don’t think it’s different this time.
