A new America — new risks

SP500

Key zone: 7,650 - 7,750

Buy: 7,750 (on a pullback following a retest of 7,650); target 7,7900-8,100; StopLoss 7,680

Sell: 7,600 (on strong negative fundamentals); target 7,350; StopLoss 7,670

The Democrats' victory in the midterm elections changes the balance of power in Washington and forces investors to reassess their expectations. Restrictions on Trump's budget initiatives could support bonds and gold while simultaneously increasing uncertainty for the largest technology companies.

Will political gridlock provide a reason for further stock market gains, or will the market shift toward a large-scale rotation between sectors?

Trump has lost control of both chambers of Congress, including in states that traditionally support Republicans.

A reminder:

The key reasons for the defeat were dissatisfaction with the cost of living, inflation, the consequences of the war with Iran, and voters' attitudes toward the administration's economic policies. However, the Democrats' victory does not mean legislative changes will begin immediately.

Starting January 3, 2027, Democrats will be able to set the legislative agenda, lead budget committees, and conduct congressional investigations. However, Trump will retain his presidential veto power.

The United States is moving toward a divided government model, in which the White House and Congress are controlled by opposing parties.

For investors, this means three important shifts:

• The likelihood of new large-scale tax breaks and additional fiscal stimulus is declining.
• The likelihood of revising regulatory approaches to artificial intelligence, energy, and the largest technology companies is increasing.
• The risks of budget confrontations are growing, including disputes over government funding and raising the federal debt ceiling in 2027.

The markets' initial reaction was mixed. Nasdaq 100 futures fell more than 2% overnight following the elections, but U.S. stocks turned higher during trading on November 4.

Gold also rose noticeably: Bloomberg quoted it at approximately $4,043.70, while Charles Schwab's morning market review put it at $4,052.30.

The result was an unusual combination: stocks are rising, bond yields are falling, the dollar is weakening, and gold is gaining.

This is not a classic flight to safety. Investors are simultaneously anticipating reduced political uncertainty and more restrained fiscal expansion.

Under these conditions, it makes sense to focus on companies with positive free cash flow, moderate debt burdens, and demonstrated returns on AI investment. Potential candidates include Alphabet (GOOGL), Microsoft (MSFT), Meta Platforms (META), Amazon (AMZN), and Broadcom (AVGO). The latest earnings reports for the third quarter of 2026 are particularly important.

The next test for the market will be the U.S. employment report, scheduled for release on November 6. It will help determine how much of the decline in yields is attributable to the election results and how much to expectations regarding the Federal Reserve's next moves.

If the broader market continues to rise while companies involved in data center development remain under pressure, this will indicate a shift from the speculative AI boom toward a more selective assessment of investment returns.

What Is the Bottom Line?

• The Democrats' victory did not trigger a sustained stock selloff — the S&P 500 ended its first post-election session up 1.6%. For now, investors view constraints on presidential powers more as a potential factor for political stabilization than as an immediate threat to the economy.
• Falling Treasury yields could support the stock market, but the ultimate effect depends on the reasons behind the move. If yields decline because inflationary and fiscal risks are diminishing, that is favorable for stocks. If the decline reflects a sharp deterioration in the economic outlook, the reaction could be the opposite.
• AI remains the main source of sector-specific challenges. Companies capable of increasing profits without a comparable rise in capital expenditures could gain an advantage. The most vulnerable businesses are those whose valuations assume virtually unlimited expansion of computing infrastructure.

Wall Street is not retreating from risk. The market is betting on more restrained fiscal policy and a lower cost of capital. The main threats to this scenario are renewed acceleration in inflation and a reassessment of expectations for AI companies' future earnings.

So we act wisely and avoid unnecessary risks.

Profits to y’all!