Hi,
The midterms are over. Democrats won both the House and the Senate, and the market liked the clarity. The day after the election, the Dow jumped 3% (more than 1,500 points) and the S&P 500 rose 1.6%. Morningstar looked at 100 years of U.S. stock returns in election months and found that elections tend to lift the market, no matter who wins, because they bring closure to uncertainty. November has also long been one of the better months for stocks. Our Certified Financial Planner (CFP) wanted to share what he’s seeing now that the results are in.
If any of these sound like you, it’s worth a look:
- You moved to cash before the election and aren’t sure when to get back in
- You’re retired, or a few years from retirement, and want to know how a divided Washington affects your plan
- You own AI or tech stocks that have swung sharply in the last few weeks
- You live in a state where taxes on high earners were on the ballot
Here’s what our CFP is seeing:
- Uncertainty has cleared, and that’s good for stocks – in the 12 months after every midterm election since 1950, the S&P 500 has been higher, 19 out of 19 times, with an average gain of about 15%. The main risk would be lingering disputes over close races, and so far the results have been accepted
- Washington is now divided – President Trump will work with a Democratic Congress through 2028. Historically, stocks have done better when one party controls both the White House and Congress. Some strategists, though, see gridlock as a positive, because fewer big policy changes means fewer surprises
- A December rate hike is still likely – markets put the odds of a Fed hike on December 9 at about 81%. Higher rates push borrowing costs up, which squeezes spending, debt, and corporate profits
- Oil and global conflicts remain a wildcard – U.S. crude fell more than 8% the day after the election. If conflicts overseas heat up again, gas prices could rise and weigh on stocks
- AI is the big swing factor – chip stocks dropped after the election, with Nvidia down about 3% and CoreWeave down about 10%, as investors weighed the huge cash cost of building out AI. Meanwhile Apple, Microsoft, and Amazon jumped 5 to 7%. He expects fear of missing out on AI to keep pulling money into the market heading into 2027, but with plenty of ups and downs along the way
His outlook: Stocks are likely to keep pushing up, cautiously, on less uncertainty, AI adoption across corporate America, and earnings. Expect swings along the way, because AI is expensive and some companies’ earnings may take a hit. A solid approach is to selectively buy quality long-term companies after big drops, and use Roth accounts to buy those dips, so future growth comes out tax-free.
Interesting side notes from the midterms:
- Taxes on the rich were on the ballot – voters weighed measures to raise taxes on high earners in California, Colorado, Washington, Massachusetts, and Cook County, Illinois. These states are home to many of the country’s biggest companies, including 56 Fortune 500 headquarters in California and 29 in Illinois, and many of its billionaires. California had 186 billionaires as of 2023
- The results were mixed – California voters appear to have rejected the billionaire tax, Washington voters kept their 9.9% tax on income over $1 million, and Colorado’s move to a graduated income tax is narrowly ahead
- Some states went the other way – North Carolina voted to cap its income tax rate at 3.5%. Missouri voters rejected a plan to invest state money in the stock market so the returns could someday replace state taxes
The catch is that none of this is a prediction. Past results don’t guarantee the next 12 months, nobody knows what the Fed or the AI trade will do next, and you can’t plan for what nobody’s tracking. That’s why we have an in-house, fiduciary Certified Financial Planner who can:
- Stress test your plan against a real correction and tell you plainly whether it holds up
- Review your current allocation and make sure it’s built for all market cycles, not just the last one
- Set up buckets of different risk around your cash flow needs, so short-term money isn’t exposed to short-term swings
- Build a plan for using Roth accounts and sidelined cash to buy quality companies on dips, so you’re not guessing based on headlines
Reply to this email by Monday and we’ll set up a free 15-minute call with our Certified Financial Planner to go over your situation and see where you stand. Bring your most recent investment statement, and we’ll talk through the next steps from there.
Sincerely,
—
George Dimov, CPA
Licensed and Insured
(833) 829-1120 toll free
(212) 994-8081 Fax
www.dimovtax.com
This email is simply for illustration purposes and is not intended to provide investment advice.