Morning in America 🥞

It’s morning again in America. This year, more money was spent on political ads than in any midterm in history. On election night, Americans bet hundreds of millions of dollars on prediction markets, more than on any election night before. The next morning, the Dow had its best day after a midterm since 1982, and by Thursday afternoon it had lost the lot. 

‍With interest rates set to rise again, and a White House and Congress that will agree on very little before 2028, investors can look forward with confidence to two long years of not much happening. 

It’s morning again in America, and under the leadership of nobody in particular, our government is slower and stuck and more predictable. Why would we ever want to return to where we were less than two short weeks ago?

We’re not in Kansas anymore

On 3 November, Kansas turned purple. The last time the Sunflower State elected a Democrat to the Senate, Herbert Hoover (the vacuum guy?) was in the White House, almost a hundred years ago. Come Wednesday morning, Democrats had won both the House and the Senate. From January, Congress will be in the hands of Trump’s opponents for the first time in either of his terms. It’s the first midterm since 2006 in which a president’s party lost both chambers.

Democrats flipped at least eight Senate seats. And many governorships too. Along with wins in Ohio, Iowa, and Georgia, Gina Hinojosa beat Greg Abbott to become Texas’s first Hispanic governor and the first Democrat elected governor there since 1990. Pundits expected a drubbing for Republicans, but few predicted the scale of the bluenami. 

The morning after the night before

On Wednesday, the Dow Jones Industrial Average had its strongest session after a midterm since 1982. On Thursday, it lost all of that and then some, as AI stocks sold off and the Nasdaq Composite slid into correction territory. Wall Street has its own superstitions, popularised by Yale Hirsch’s Stock Trader’s Almanac from 1967, which says the year after a midterm tends to be stocks-friendly, but it’s more folklore than forecast.

The vote wasn’t the only thing on investors’ minds. War with Iran since February has squeezed oil and pushed up fuel prices, and tariffs are redrawing global trade. Even MAGA hates the tariffs. Geopolitics hasn’t been this tense in years. The Fed was expected to raise rates again, and AI stocks had climbed most of the year despite worries about valuations.

Polls apart

It’s the AI, stupid. Data centres were a hot button issue in states like Texas and Ohio. Following the vote, investors worried a Democratic Congress and new state governments could slow construction. That puts the companies building the chips and data centres firmly in the frame, from chipmakers Nvidia (NVDA) and AMD (AMD) to memory maker SanDisk (SNDK). Not to mention, cloud giants Microsoft (MSFT), a major backer of OpenAI, and Amazon (AMZN), which run the data centres themselves.

Defence companies were most exposed to the result, as Democrats are expected to push to end the Iran war. That puts the spotlight on contractors such as Northrop Grumman (NOC), Lockheed Martin (LMT), RTX (RTX), and General Dynamics (GD). An end to the war would also change the picture for oil producers and refiners such as Exxon Mobil (XOM) and Phillips 66 (PSX), which have benefited from squeezed supplies.

Companies hit hardest by tariffs may have the most to gain from any relief. Constellation Brands (STZ) holds the US import rights for Corona and Modelo, and Brown-Forman (BF.B) makes Jack Daniel’s, much of which is sold abroad. A Congress focused on affordability puts housebuilders D.R. Horton (DHI) and PulteGroup (PHM), and retailer Home Depot (HD) in the frame. In uncertain times, investors often turn to consumer staples such as Costco (COST), Procter & Gamble (PG), and Dollar General (DG).

Money balks

The 2026 midterms were the most expensive election cycle in US history for political advertising, with spending of more than $11.8bn, against $8.9bn in 2022 and $11.2bn in the 2024 presidential race. Texas alone set the record for the most expensive non-presidential race, with more than $560m in ads.

Elon Musk put almost half a billion dollars into helping Republicans keep Congress. It didn’t work. Democrats are now expected to look into his time as the administration’s cost-cutting chief, which puts Tesla (TSLA) and SpaceX (SPCX) in the spotlight. Trump Media & Technology (DJT) is the most direct bet on the president’s fortunes.

Local TV stations were the big winners. By the end of August, Gray Television (GTN) had taken $434m in political advertising, ahead of Nexstar Media Group (NXST) on $416m, including its TEGNA stations, and Sinclair (SBGI) on $319m. TV has been part of American elections for more than 70 years. In 1964, Lyndon Johnson’s Daisy ad, which aired as a paid advert just once, became the most famous political ad ever made. In 1984, Ronald Reagan’s re-election campaign ran Morning in America, a soft-focus montage of weddings, new homes, and people heading to work. Reagan went on to win 49 of the 50 states.

Bet bill

Betting on midterms went mainstream this election. Kalshi, the largest US prediction market, says trading on its midterm markets passed $2.5bn, against $1.3bn for the whole 2024 election cycle.

Robinhood (HOOD) offers event contracts through Kalshi, and earned $173m from them in the third quarter, about 12% of its revenue. Intercontinental Exchange (ICE), which owns the New York Stock Exchange, has invested in Polymarket. Interactive Brokers (IBKR) has ForecastEx, which saw about $6.4m in midterm trading by late October. Election betting isn’t new. What’s changed is the kind of market, not just the size. Kerbside wagers, popular in the early 20th century, have become regulated contracts, sold through the same apps people use to buy shares.

Gum control

The new Congress is sworn in on 3 January 2027. Control of both chambers gives Democrats the lead on spending bills. Defence bigwigs had been counting on a $1.5tn request passing a Republican-led Congress. The president still has his veto, and overriding it takes a two-thirds majority in both chambers.

Midterms give voters a say on a president halfway through a term, and since the Second World War they have almost always used it to trim the president’s power. Good. The system does work. Republicans outspent Democrats on advertising by about $5.2bn to $4.8bn by late October, yet voters still sent the White House a clear message.

One big beautiful comeback

Whatever you make of the policies, Trump has got far more done than he ever did in his first term. If anything, four years out of office helped. He returned knowing how Washington works, with a team ready from day one, and allies had spent the time drawing up detailed plans.

The One Big Beautiful Bill Act, signed July 2025, overhauled the federal tax code and government spending. His tariffs, “the most beautiful word in the dictionary”, pushed the average tax on imports to nearly 17%, the highest since the early 1930s. He has also issued 292 executive orders, against 220 in his entire first term.

Nowhere has he done more than on immigration, the issue that won him the White House. The big bill allocated $170bn over four years to immigration enforcement, compared with about $30bn in 2024. The fall in border crossings has been one of the steepest year-over-year drops in decades.

Stall St

Remember, the man swept all seven swing states in 2024. Two of those states, Georgia and North Carolina, have now handed Democrats a governorship and a Senate seat. For two years DJT had Congress behind him. But from January, any new laws will need Democratic votes too. That makes sweeping changes to tax, regulation, or spending harder to pass, which means fewer surprises. Trump will have to pick his fights carefully. 

So, do midterms move markets? For a day or two, sure. Rates, earnings, and wars matter more. The midterms have done their job, checking the executive’s power. After two white-knuckle years, Washington is about to slow down, probably, thankfully. Plenty are tired of living in interesting times. A government able to do less can only make so much mess.