Major Takeaways from Midterms
Votes in the midterm election have been cast and divided government is here. History around midterms offers an encouraging analogue for stocks: since 1950, the S&P 500 has gained an average of 15.1% in the 12 months following midterm Election Day, with positive returns in all 19 periods. Election results add another risk to the AI infrastructure boom.
Beyond the Ballots: What Matters For Markets
Jeffrey Buchbinder, CFA | Chief Equity Strategist
Votes in the midterm election have been cast and divided government is here. Getting past this clearing event and removing the outcome uncertainty should be positive for markets if history is a guide. Despite the stronger-than-expected performance by the Democrats, sweeping changes on taxes and spending are still not in the cards with President Trump in the White House.
As discussed in today’s LPL Research market article, election results could still have important investment implications, particularly for healthcare, AI and data centers, defense spending, banking deregulation, and even interest rates.
History around midterms offers an encouraging analogue for stocks: since 1950, the S&P 500 has gained an average of 15.1% in the 12 months following midterm Election Day, with positive returns in all 19 periods.
While Washington certainly matters (as do local politics governing data center builds), remember politics alone don’t drive markets. Economic growth, corporate profits, inflation, interest rates, and the AI remain more powerful long-term forces.
Bottom line: With election uncertainty ebbing, investors can turn their attention fully back to solid economic growth, prospects for easing inflation, strong seasonal tailwinds, and the expanding benefits of AI adoption.
Data Center Buildout Faces Growing Political Headwinds
Jeffrey Roach, PhD | Chief Economist
Election results add another risk to the AI infrastructure boom. Opposition to data centers is shifting from local concerns over electricity prices, water use, and grid capacity toward formal restrictions on new development.
Texas could see the biggest shift. Tighter restrictions on new data center construction could slow development in one of the country’s most important AI infrastructure markets and redirect some investment toward other states.
Ohio highlights rising local opposition. The state already had 125 local data center moratoriums heading into Election Day, with at least 14 municipalities reportedly approving additional bans or restrictions. Permitting risk is becoming increasingly local, making the timing and location of AI investment less predictable.
Georgia is another market to watch. Changes in state leadership and legislative priorities could affect permitting, energy policy, and the pace of future data center projects.
Washington could add another layer of scrutiny. Congress could increase its focus on the data center buildout, particularly around electricity costs, grid reliability, water consumption, and who pays for new power infrastructure.
Bottom line: We still expect AI-related capital spending to be an important economic tailwind, but the risks are rising. Power availability, permitting, local politics, and infrastructure constraints may increasingly determine where and how quickly AI investment translates into economic growth.
Post-Midterm Election Day Performance
Adam Turnquist, CMT | Chief Cross-Asset Strategist
Political uncertainty tends to build ahead of midterm elections, and that often shows up in choppy price action and higher implied volatility as investors add protection ahead of Election Day.
However, once the election is in the rearview mirror, some of that uncertainty fades as investors focus less on what might happen and more on the policy and market environment in front of them.
Historically, that has been accompanied by lower expectations for future volatility and improving risk appetite.
Important Disclosures
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. It does not take into account the specific investment objectives, tax and financial conditions, or particular needs of any specific person. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes.
Investing involves risks including possible loss of principal.
Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index.
Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges.
All performance referenced is historical and is no guarantee of future results.
The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of the predecessor index, the S&P 90.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.