Signals to Watch in the U.S. Midterms

The upcoming midterm elections are unlikely to fundamentally shift U.S. policy direction, as major market drivers like tariffs and deregulation remain centered in the executive branch. Current indicators, including record-low consumer sentiment and a 37.6% surge in gasoline prices, signal a challenging environment for the incumbent party driven by affordability concerns. While the S&P 500 historically averages a 14% return in the year following midterms, investors should prioritize business cycles and the AI investment trend over political headlines. A key emerging theme is the "conditional build-out" of AI infrastructure, where federal bipartisan support meets growing state-level resistance over electricity costs and water usage. Consequently, a divided government may not ensure market clarity, as executive actions and local policy decisions regarding taxes and infrastructure will likely exert more influence on long-term asset allocation and municipal bond markets than the congressional outcome itself.