Election Result Implications for Investors – November 6, 2026

Dear Valued Clients and Friends,

In this week’s Dividend Cafe, I am going deep into the results of the Tuesday night midterm elections and what they all mean for investors.  We will look at history.  We will look at the future.  And we will plead with investors not to make some of the biggest mistakes investors are prone to make in situations like this.  And we are going to have a lot of fun doing it.

I will also suggest you check out this hour-long interview I did with Mark Halperin at 2Way on Thursday.  He has a way of asking thoughtful and provocative questions and digging deeper than most interviewers do.  And I answered all of them the only way I know how.

Let’s jump into the Dividend Cafe…

Download Podcast Transcript

The Morning After, Then the Day After That

Before we get into the bigger picture, why did markets rally the way they did Wednesday?  The Dow was up +1,569 points the day after the election, a +3.03% jump.  But on November 6, 2024, the day after the last election, the Dow was up … wait for it … +1,508 points (then a +3.57% jump).  So basically, you had an almost identical move after both of the last two elections, though each election had a profoundly different result.  What explains this?

1. Resolution.  Markets care more about the existence of finality than what that finality was.  Uncertainty = bad. Certainty (no matter what it is) = better.  This is a permanent condition of markets.
2. “Day after” unwinding of hedges – traders offside (one way or the other) taking down protection they had put on through the race leaves a much higher percentage of buyers than sellers and puts upward pressure on prices.

I said at a client dinner event in Grand Rapids Wednesday night that it is never the first day after an election that gives clarity.  And, indeed, Thursday markets gave it all back, and then some – with a special level of bloodbath in the Nasdaq/tech sector.  Did some political risk come to mind Thursday mid-morning that traders forgot about Wednesday?  It surely must strike you as a ridiculous theory, right?

Instead of the big zig up and big zag down, let’s talk about what actually matters.  We are in the midst of some significant post-election volatility with certain themes that began well, well, well before the election now being exacerbated.  From AI capex to Iran to trade to a couple of straggler issues, I want to look at each one objectively.

State and Local Flippery

All of the talk has been on the Democrat Party pick-ups in the U.S. Senate that gave it a substantial majority there, and then on Democrat pick-ups in the House (there are still 36 uncalled seats of press time), but the Democrats have already secured a majority, regardless.  The Democrats have secured 244 (it is 218 needed for a majority), so the margin of majority is going to be somewhere between 70 and 90 seats – a simply massive reversal that will not be easily undone any time soon.

That said, the national picture, as historical as it was in the Senate and House, really understates the story, if that is possible …  The state and local races are where things become pronounced.  Statewide legislative control has flipped to Democrat majority in at least seven states (lots of votes still being counted), and even in red states like Indiana, Kansas, Missouri, Ohio, South Carolina, and Florida, the Republicans lost supermajorities that, in some cases, they have had for decades (so to be clear, Republicans still have a majority in many of those states, but lost a lot of seats and “supermajority” status).  In Georgia, Ohio, Iowa, Nevada, and Texas, the Governor had been a Republican and will now be a Democrat.  It would be too granular to share all the city council data I researched in the last 48 hours, but if you drill down beyond governors’ mansions and state legislatures, it is even more profound.

I bring this up not just to demonstrate the substance of what happened in the blue tsunami on Tuesday night, but because market impact in many of the areas most relevant right now is connected to state and local issues, too.  Indeed, because data center controversy is one of the most visible issues nationally, I suggest the fate of new data center builds has more state and local relevance than Senatorial or Congressional relevance.

Tech Vulnerability

I lack the ability to omnisciently declare how much of the tech sell-off Thursday is related to the election results and rational concerns about the fate of AI capex and data center build in its aftermath.  On one hand, the concerns are reasonable at the obvious level, and I can’t see how the prospects of AI capex were improved by Tuesday night.  But on the other hand, something that was already being called into question around financing, valuation, and political concerns (trifecta) for a month before the election could very well be dealing with a perfect storm regardless …  Ultimately, I would offer the following four points:

1. Data center build was a big problem before the election.  It is a bigger problem now.  AI capex had funding problems before.  None of this story got better this week.
2. Campaigning against data centers is going to prove to be easier than actually banning them.  If you think people are mad about data centers, you should see how mad they get if unemployment skyrockets.  Of course, I realize it is not that literally binary …  But it isn’t totally untrue – there are trade-offs that elected officials have to deal with which are different than the bold assertions people make on a campaign trail.
3. It could, maybe, possibly, prove to be a blessing in disguise for some of the hyperscalers if it marginalizes some of the excessive capex plans they have.  That may not help their suppliers (and you see the pain right now in the “pick and shovel” side of the AI complex), but maybe it sobers up some of the hyperscalers at a time when they seem to want to keep the drinks coming?
4. Believing this development constrains new data center builds, and other forms of compute is one thing; but that is a far cry from saying it kills the projects already approved and already in development.  There are 26 data centers in Texas already approved and/or under construction.

I don’t want to understate the risk here.  Texas data center investment alone is the same level as all of China (both in the $65-70 billion range) this year.  And by the way, it isn’t like the party that lost was running on some pro-AI and pro-data center platform either.  My point is, the story was vulnerable before the election, and it’s gotten more so since.

Is the Iran Thing Done?

I think one market “narrative” (for lack of a better word) is the idea that the Iran war is coming to an end – that as a result of Democrat Party control of the House and Senate and the removal of this political moment, the President is going to exit stage left in Iran, taking that consideration off the table as a tail risk in markets, and theoretically catalyzing a Hormuz opening that de-risks cargo, freight, and transportation and puts downward pressure on diesel prices, etc.  Oil prices were down -10% Wednesday.  The President said he was cutting off aid to Israel on Tuesday.  Vice President Vance came out Wednesday and blamed the election losses on the Iran war.  Markets have prima facie reason to believe that this piece of global news may be falling off the pages of the newspaper …  And then, as the logic of some goes, if that is true, those sectors hurt by higher input prices (Industrials, Consumer Staples) and the bond market itself all benefit.

So, the logic of all this makes sense.  But is it accurate?  Well, we know VP Vance wants to end this thing.  We know it is unpopular.  And we know the Democrats are not going to offer any support to the ongoing effort.  But there are two things I would bring up here …

1. The premise that the President will end it all.  I mean, I am not saying he won’t.  I am just not sure how anyone else can know that when I am quite confident he does not currently know what he will do.  And I am not sure what it means to “end it” …  Leaving Hormuz in the hands of Iran?  Paying them gazillions of dollars?  Or does it mean a military escalation and then a departure?  I think moving from a political premise to a geopolitical conclusion is easier said than done.
2. And then, let’s say it does end, are we really sure stock, bond, currency, and oil markets all respond in such a way?  What is already priced in?  What isn’t?  What other factors play in?  I am just not sure that the premise to conclusion being suggested as market narrative is as predictable, linear, and simple as some seem to think.

So what are the policy expectations in the weeks/months ahead, and what are the corresponding market scenarios for each?

1. President Trump does leave altogether – oil prices fall (at least at first), the dollar falls, EM stocks rally
2. More of the same: tough blockade rhetoric but nothing seemingly happening – oil stays high, energy stocks stay high
3. A combination of #2 above with actual enforcement/pressure on other countries still transacting with Iran; shock & awe with Hormuz – oil spikes higher, bond yields spike higher, stocks drop for a bit
4. A full-blown re-start with the war (with U.S. bombing), going for real regime change – oil prices jump, bond yields here may fall in flight to safety

Trade

President Trump said on Wednesday that he and Bernie Sanders had the exact same views on trade.  On the other hand, 67% of voters said Tuesday (AP Voter Poll) that tariffs fueled inflation and weakened the economy.  Is trade an area where the White House may try to make a deal with the new Democrat majority?

Ironically, it may not be so simple.  While Republicans have historically been a party that valued free exchange and many (not all) on the left opposed it, and while President Trump may be right that he and Bernie Sanders have the same view on trade and tariffs, it is highly unlikely that the Democrats would work with the President on this issue, and the impact tariffs have had on prices is hardly something Democrats want to share credit for!  This is one area where they will be happy to let the President own the issue.

I do not expect tariff policy to weaken markets further from here, simply because I do not think there is much political will or economic capacity to expand what has been done (not to mention legal bandwidth, given the lack of Article I, Section 8 support here).  In fact, marginally, I suspect the President will continue to do what he has been doing – slowly, and often inconspicuously lifting tariff impositions where he can.  But maybe I am just guilty of wishful thinking …

A National Wealth Tax?

I have something positive to say.  If the most progressive, left-leaning state in the country, with tens of millions of dollars being spent, on the most blue tsunami meteor strike night in electoral history, can’t pass a “wealth tax,” who on earth believes it is about to happen nationwide?

No one should, because it isn’t.  It doesn’t work.  It doesn’t have consensus support on the left.  It is tried and tested around the globe and failed every time by its own standards (to generate more revenue).

Next Year

A very popular point market pundits like to make is that 21 of the last 21 “third years” in a Presidential term (that is, the year after a midterm and year before a Presidential election, markets have been up).  This goes back to 1943, and it is true.  Now, keep in mind that in 2015 the market was up +1% and in 2011 it was up +2% and in 2007 it was up +5%, but yes, it was up.  But I would suggest any historical stat that has lots of +23% years and lots of sub +5% years is a correlation lacking causation, subject to alteration, so I would be very careful creating investment policy around such a thing.

A Permanent Realignment?

One issue that has come up more than once this week is whether the political tides are shifting, a permanent change is coming, or there has been a coalitional shift that realigns the whole enchilada, etc.  Here, I want to encourage people to remember history, and by history, I mean very, very, very recent history.  Like in 2024, when President Trump won in all seven battleground states, and seemingly had a coalition with single white men and improved performance with Hispanic voters on top of his already high ratings with working-class Americans that suggested a tricky coalition to undo.  That was two years ago.  It appears to have burned to the ground far quicker than it took to form.  But alas, we can look at the 2010 midterms for President Obama and his victory in 2012.  We can look at the 1994 Republican-Gingrich surge and the 1996 Clinton re-election.  We can look at the Watergate moment for Republicans in the mid-1970’s and the Reagan Revolution that began in 1980.  I can extract plenty of other historical anecdotes, including the details of how things have gone every two years for most of my adult life … modern political history in America is the story of voters being dissatisfied with who is in charge (for good reason), voting in the other party, and then becoming dissatisfied with them (again for good reason), and having this play out over, and over, and over, again.  So no, any talk of a “permanent realignment” is nonsense.

But have coalitions broken down?  You bet.  Just as the coalition that worked for President Clinton was not the one that worked for President Obama, and the one that worked for President Bush Jr. was not the one that worked for President Trump, this is not new.  It is normal.  Coalitions change.  And whoever is going to win in two years, four years, six years, and twenty years will likely win with a very different coalition than past victories reflected.  Over 30% of voters now identify or register as “independent” (I am one of them).  Democrats won that block this time by 17 points – a massive margin.  But “independent” versus partisan identification within that size of the population means that the only thing that will be permanent is change.

Our founders knew this, anticipated it, and embraced it.  I believe the Democrats are highly likely to misunderstand what happened Tuesday night and make mistakes.  I believe the Republicans have been misunderstanding what happened in 2016 and 2024 ever since and making mistakes.  But I believe some change is coming (good and bad) that can’t be written about right now because they are unpredictable.  And I believe that out of these changes, the good ones and the bad ones, the ups and the downs, the election nights you like and the ones you don’t like, there are going to be profit-making enterprises doing what they do best.  And I believe investor success stemming from “the permanent things” is a far more sustainable aligned coalition than any voting bloc ever will be.

P.S. – And I also believe sometimes it takes losing, and losing badly, to change.  It doesn’t always happen.  But it often does.

2028

I say what I am about to say politically only for the purpose of providing a forward market perspective that I believe is relevant.  Will the Democrats who just had the most successful political week in recent memory parlay this into lasting political victories by thoroughly understanding what voters did, and why?  What they were rejecting, but also what they were not necessarily embracing?  I am skeptical. I believe they could, and I believe the political opportunity they have here to moderate and pivot is generationally alluring. But history tells me that they are more likely to overplay their hand, or simply mis-read all together what happened and why.

Will Republicans look at what happened, make adjustments, begin to digest the reality of the situation, and act accordingly going into 2028?  Again, it is hard to be optimistic.  Political history suggests a pretty consistent obstinance from losing parties.  But maybe this is different – the losses so severe and dramatic that some reckoning becomes inevitable.  I cannot say.

What I do know is that markets will be assessing and discounting both of the above things for the next two years.  They are not simple things, but whatever the market complexity of a discounting mechanism is, it will be alive and awake as we see the aftermath to this week’s results, and what it may mean for the 2028 intentions of both parties.  I say this with the greatest optimism possible: I believe the odds of a real intra-party GOP debate happening about the future of the party and her principles in the 2028 primary went up exponentially this week, and the idea of a simple coronation and extension, devoid of a real adjudication of what the party wants to be, is now very unlikely.  Of course, I cannot say what the results of this debate will be.  But I am just glad for the country one is now more likely to happen.

And I think in the end, markets will be, too.

Chart of the Week

In looking at what we have done with our own Strategic Petroleum Reserves since COVID, I have an idea for a policy priority in the years ahead…

Quote of the Week

“It isn’t in your power to turn down the noise.  It is, though, in your power to turn up the quiet.”
~ Nick Murray

More to Chew on

• Speaking of a “wealth tax,” my commentary in Commentary from six years back lambasting the idea
• And speaking of Iran, the election results, and the Vice President …

I already know next Friday’s Dividend Cafe topic, and I will leave you in suspense.  I am excited to be doing a normal Monday Dividend Cafe on Monday, and I am more excited than you know that these midterms are over.  I wish you all a wonderful weekend, free of political ads, filled with family and football, and maybe even church for those of you who do such a thing (I recommend it).  Politics is a funny thing, and yet I am confident that whether it be in markets or our personal lives, it is highly, highly, highly overrated for its importance.

With regards,

David L. Bahnsen
Managing Partner, CIO

thebahnsengroup.com

This week’s Dividend Cafe features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet