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With prediction markets pointing to Democratic gains and likely gridlock in Washington, investors may welcome the resolved uncertainty, as stocks have risen in the 12 months after every midterm since 1950, leaving corporate earnings (driven largely by AI) as the key focus with state-level races potentially shaping data center development.
What caught our eyes this week
A known unknown approaches
Midterm elections are finally here. Prediction markets lean toward strong Democratic gains: either a split Congress or a Democratic sweep. Barring a historic case of polling error (which has happened before and could happen again), the outcome for Washington, DC, seems clear: Expect gridlock. Markets tend to like gridlock because it reduces the chance of surprises down the road. Perhaps more than anything, they appreciate the resolution of uncertainty, with the S&P 500 higher 12 months after every midterm election since 1950. Why? After moving past a “known unknown,” investors typically turn their attention back to what matters most for stocks: corporate earnings. On that front, trends have been exceptionally strong. Admittedly, much of that strength hinges on the ongoing proliferation of artificial intelligence, a topic which has been at the center of the political discourse on both sides of the aisle. Given the expected gridlock, that may make gubernatorial elections more interesting, with potential impacts on state-level friendliness—or lack thereof—toward data center development.
CHART OF THE WEEK: Cerity Partners, S&P Dow Jones, Kalshi
Past performance does not guarantee future results.
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