Investors are trying to get their heads around what a Democrat landslide in the US mid-term elections means for financial markets, with an initial stock sell-off quickly turning into gains.
Futures prices for Wall Street swung from red to green as investors weighed up what might happen next. S&P 500 futures point to a 0.2% gain when the US market opens, while Dow futures are up 0.5%.
Theoretically, a divided government can create gridlock for policy changes, but there is a school of thought that Democrats may prioritise pushing through AI regulation.
Given that AI has been the key to considerable stock market wealth creation in recent years, the prospect of red tape could put the brakes on this hot investment theme. However, a positive market reaction implies that certain investors are welcoming the potential that Trump’s political power may be curbed somewhat.
The big risk is uncertainty around how Trump could act in the coming months following such a result. Gold jumped 2.7% to $4,038 per ounce, which suggests that investors have added a little protection to their portfolio as a ‘just in case’ precaution. The precious metal may also be responding to incipient fears that the Democrats may go on a spending spree if they get the chance.
Brent crude nudged 0.3% higher to $103.88 per barrel, perhaps reflecting how Trump may now focus more on foreign policy, where he could have more sway than over domestic matters, and ratchet up tensions with Iran as a result. Higher commodity prices also gave a boost to the FTSE 100 where oil producers and miners led the charge alongside banks.
Once the dust settles and the final mid-term results are known, the Trump administration has until 3 January to pass legislation before the new members of the House and Senate take their positions. Then the real horse-trading will begin, with likely hot button topics being spending and the debt ceiling.
Specific issues such as Medicaid, defence, energy, AI, crypto and banking (de)regulation are all likely to come to the fore as well, but the race to the White House in November 2028 is now and well truly on.
History suggests that the US equity market performs best, on average, in the third year of a presidential term, with an average double-digit percentage gain, against single-digit average percentage gains from years one, three and four, and only one ‘down’ third year since the Second World War.
Both parties will again be readying themselves and voters for the 2028 election as best they can, and that could mean priming the economy – though whether they get the chance to spend freely to do so remains open to question. Earnings forecasts and valuations are already lofty by historic standards, too, so the starting point is not as promising as with some other presidencies.
JD Wetherspoons
The good news for Wetherspoons is that its value-focused offering is outperforming a tricky hospitality market, as punters’ appetite for cheap pints and affordable grub comes to the fore.
The bad news is that growth has moderated in recent weeks and Wetherspoons is heavily exposed to inflationary pressures thanks to its policy of prioritising volumes over margins. The company is sticking with guidance but continues to face a difficult balancing act as it looks to pass on some of its extra energy and staffing costs to customers without undermining its bargain credentials.
Management have demonstrated some confidence in the outlook by moving from a period of consolidation to adding new pubs to its estate, and a hefty repair and maintenance bill in recent years could begin to normalise. Whether this is sufficient to sustain the recent momentum in the share price, now up nearly 40% year-to-date, is an open question given the challenging backdrop.
Barratt Redrow
The market reacted with relief that housebuilder Barratt Redrow is sticking with its current guidance, but these full-year targets could be built on shaky foundations given recent market trends.
Completions are under pressure thanks to rising borrowing costs, which could make achieving the expected level of full-year volumes a tough ask.
Demand in the private market is weak, reflected in lower reservation rates, although institutional buying for the private rental sector has helped pick up the slack. Barratt is doing its best to mitigate rising input costs through a disciplined approach, but margins are likely to remain under pressure.
The order book looks relatively robust, and Barratt has a strong enough balance sheet to provide a buffer against the current sector headwinds while still being able to reward investors for their patience with share buybacks.
Like its peers, Barratt will be looking ahead to the launch of the Your First Home scheme. While this could provide a helpful fillip, it seems unlikely to be as impactful as the Help to Buy scheme was in the 2010s.
What Barratt and the wider industry needs is an improvement in the inflationary and interest rate environment, which is linked to global factors over which it has zero control.
Marks & Spencer
Marks & Spencer is on the road to recovery as it tries to put last year’s cyber disruption in the rearview mirror. However, the journey is far from complete as first-half sales and profits are still below pre-cyber-attack levels.
Candidly, M&S chief executive Stuart Machin says the results fell short of their potential and that there is more to do. That shows drive and determination to put the business back on top, but a realisation that Machin can’t click his fingers and return everything to normal after one of the most disruptive periods for M&S in decades.
The company’s products in both food and fashion are resonating with shoppers. That’s a fantastic place to be in, but there is still room for improvement in what happens behind closed doors. A strategy to ‘reset the backbone of the business’ shows that it is seeking ways to become more efficient in every touch point that goes from product creation, distribution and customers having the goods in their hands.
High energy prices have created the wrong environment for retailers to prosper, meaning Christmas 2026 has the potential to disappoint unless consumers feel like they deserve to splurge as a ‘pick me up’ after a challenging year. M&S is well placed to benefit if that happens, as there is always a sense of affordable luxury about its products. But reality could bite, and there is no guarantee of a festive flurry in trading.
Russ Mould: Investment Director
Russ Mould is AJ Bell's Investment Director. He has a Master's degree in Modern History from the University of Oxford and more than 30 years' experience of the capital markets.
He started out at Scottish...