Mid-Term Market Mania

Okay, uh, let's talk about the importance of midterms and elections, but let's start more generally as, as market-moving events, their importance.

It's easy to get caught up in the political theater.

I think we can all kind of agree to that, but how much influence do they have, and, and by they, I mean elections, have on market outcomes, in your opinion? And I'll start with you, Henrietta, and then John, if you wanna weigh in on that as well.

You know, you raised a really interesting conundrum here.

What we're watching in real time is politicians responding to polls before the election even happens.

So that is, in and of itself, a force of the election cycle because there is urgency, and what politicians are doing now, considering a diesel export ban, considering halting data center construction from Texas to Tennessee, calling for release of heating oil in Maine, those are all features of the election, and they have meaningful market impacts, and November 3rd hasn't even come yet.

We're not even in the same month.

So that has been building, and the f- the second piece I would say that is not necessarily unique to this year, but every cycle has its quirks, at the end of this year, it's very likely that Democrats take control of one or both chambers of the House and the Senate, and we have some really big things that Republicans will want to do to insulate the president from Democratic control if and when they get power on January 3rd, 2027.

And some of those things are massive.

An increase in the debt ceiling so that we don't have the first-ever default, a Pentagon package to perpetuate the war with Iran.

They need about $100 billion.

A farmer's bailout, all things that they're gonna wanna do as they cram into the last two months of the year post-election and before the next Congress is sworn in.

So there are major market-moving events happening in real time now and to come immediately after November 3rd.

And then John, just from your perspective over the years, maybe you can talk a little bit about that intersection between US politics, elections in particular, and, uh, market outcomes.

And markets.

Of course.

Yeah.

Yeah, so more than ever, David, w- we've never seen the markets react, to Henrietta's point, polls or prediction markets now that we have Kalshi and some of these other markets, more so than ever.

From my perspective, our job is to eliminate the noise from the signal, and there's lots of noise in this market on any given day based on a Kalshi poll or whatever the case may be.

So that's the first thing that we have to try to manage is try to eliminate that, that, that noise out of the marketplace and then really figure out what signal is.

On the signal side, something that really amazes me more than anything is this idea of a split Congress being the most effective Congress going forward.

If you look at markets going, uh, you know, back to 1940s, when, when you have a split Congress, so Democrats on one side, Republicans on, in the other house, whatever the case may be, markets actually perform quite well, uh, because they have to work together.

And when they're working together, you get more things done, which is kind of at, at odds to reality, but that's typically the way it works.

Uh, the last time I checked, uh, a split Congress, the average return is somewhere around 18%, uh, which is pretty good.

Uh, so we're, from a markets perspective, hoping for a split Congress.