In an interview with CNBC, Kevin Mahn, CIO of Hennion & Walsh Asset Management, said historical trends favor stocks in the 12 months following midterm elections, but the current outlook depends on several “ifs.”
- Freedom Capital chief market strategist Jay Woods called President Donald Trump an “X factor” for markets, noting that his unpredictable decisions could affect investor sentiment.
- According to Pangaea Policy’s Terry Haines, Trump is unlikely to change course after the election.
- Haines warned of a potential “Bessent-led” fiscal fight and renewed escalation with Iran.
The U.S. midterm elections may hold few surprises for markets, analysts said Tuesday, but a deeper tech selloff, an unexpected electoral outcome and the war with Iran could still unsettle investors.
Kevin Mahn, president and chief investment officer of Hennion & Walsh Asset Management, said that while history offers a more positive outlook for stocks over the longer term, there are many “ifs” to account for in the current midterm elections.
“If inflation continues to moderate, if the Fed stays on the sidelines next year, if the AI infrastructure build-out continues, as we all believe it will, well, 2027 is shaping up as a very strong year for investors,” Mahn told CNBC in an interview. He noted that the stock market has risen in the 12 months following every midterm election, with an average gain of 15%, since 1950.
Jay Woods, chief market strategist at Freedom Capital Markets, added that oil prices would need to come down as well.
U.S. equities were mixed in morning trade on Tuesday. The SPDR S&P 500 ETF (SPY) was up 0.36%, and the Nasdaq-100 tracking Invesco QQQ Trust (QQQ) moved 0.67% higher, while the SPDR Dow Jones Industrial Average ETF (DIA) slipped 0.45%. Retail sentiment around SPY on Stocktwits shifted to ‘bearish’ from ‘bullish’ over the past day, while chatter rose to ‘high’ from ‘normal’ levels.
Woods Says Trump Remains An ‘X Factor’ In US Midterm Elections
Woods also said that President Donald Trump remains an unpredictable factor for investors. “Trump is an X factor. You don’t know what he’s going to say. You don’t know what he’s going to do,” he said. “But he does use the stock market as a report card.”
Meanwhile, Terry Haines, founder and head of political analysis at Pangaea Policy Advisory, said he does not expect Trump to change course after the election, regardless of the outcome.
“Trump won’t act rebuked. What’s coming next is a Bessent-led huge fiscal fight and a potential cranking up of Iran again,” Hains said, referring to U.S. Treasury Secretary Scott Bessent.
Could Election Results Slow The AI Buildout?
Analysts differed on whether the elections could create a meaningful obstacle for AI infrastructure investment.
Some state and local races, including in Georgia, Texas and Arizona, could influence data center construction and the ability of utilities to profit from the projects, according to a Barron’s report. It identified Oracle (ORCL), utilities Southern Co. (SO) and Pinnacle West Capital (PNW), and energy company Sempra (SRE) as companies with exposure to the issue.
While ORCL stock gained almost 5% in midday trade on Tuesday, SO stock and SRE shares edged lower. PNW stock was more than 1% after the company’s third-quarter earnings beat.
Haines downplayed the risk, describing local opposition as a means for officials to secure benefits for their communities rather than a threat to the broader AI industry. “I would look at the AI controversy in the state and locals much more as kind of a rent-seeking exercise,” he said. “But I don’t think that’s going to be a material drag on AI, which is a national security matter essentially.”
Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management, was more cautious about the potential for regulatory hurdles. “I think you’ve got some sectors that will have some problems regulation-wise, and I think you know data centers being one of them,” he said. “That seems to be a rallying point, both federally and locally. I think you could see some hiccups here if the Democrats do gain their power.”
Surprise Midterm Election Result Could Rattle Stocks
Landsberg said markets have largely priced in the outcome expected by most polls. The bigger risk, he said, is a result that falls outside those expectations.
“We know polls have been wrong, and we’ve all seen that. So I think if there’s something that’s really extreme, for example, if the Republicans lose bigger than they thought… that would be obviously a shock to the markets,” Landsberg said. “And I think the flip side is if the Republicans manage to hang on to control here, I think the market would rally.”
Woods added that uncertainty could persist if vote counting drags on or results are contested. “Let’s see what happens over the coming weeks if these elections are contested. It could cause market angst, but I think any dip will just be that buying opportunity,” he said.
Tech Selloff Raises Questions About Valuations
For investors, the more immediate concern may be the technology sector. Apple (AAPL) and Palantir Technologies (PLTR) were both lower in morning trade on Tuesday following their earnings reports.
“Technically, I am a little concerned. I don’t think the worst is over, and I think this washout is in the midst,” Woods said. “When technology leads, when the semiconductors break down, I am concerned it could have ramifications for the next few weeks.”
AAPL stock fell around 2% in midday trade on Tuesday, while PLTR stock fell over 3% and both were among the top-trending tickers on Stocktwits. Retail sentiment around Apple remained in the ‘bearish’ zone, but sentiment around Palantir flipped to ‘extremely bullish’ from ‘bearish’ territory over the past day. Both saw chatter jump to ‘extremely high’ from ‘normal levels.
Woods said investors were picking apart even strong earnings reports. He noted that at Apple, attention had turned to margins, while investors were scrutinizing the free cash flow of Alphabet (GOOG, GOOGL) and Amazon (AMZN) as the companies spend heavily on AI data centers. “It’s not a company issue, it’s a stock valuation issue,” Mahn added.
Meanwhile, Landsberg said investors appeared to be selling first and examining the results later. “I think people are kind of selling first and taking a look at the data later,” he said.
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