AI darlings, defence shares most at risk as U.S. midterms near

Skip to Content News Archives Economy Defence Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Defence Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Defence Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeInvestorAI darlings, defence shares most at risk as U.S. midterms nearHistorically, the SP 500 index has risen in the 12 months after every midterm election since 1946, according to Wells FargoAuthor of the article:Matthew Griffin and Felice MaranzSome Wall Street strategists are positioning for a push from Democrats for tighter regulation, which could fuel selling pressure. Photo by Michael M. Santiago/Getty ImagesArtificial-intelligence regulation, along with government spending on health care and defence are emerging as equity investors’ chief points of focus as the final month of the United States midterm campaign kicks into high gear.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountPolls show the Democratic Party as a heavy favourite to win control of the House of Representatives, with an edge in key Senate races as well. Taking at least one chamber of Congress would give the party control of committees that can propose legislation and open investigations.This advertisement has not loaded yet, but your article continues below.Concerns about AI cross party lines, with voters worried about potential risks along with job losses and higher electricity prices. Some Wall Street strategists are positioning for a push from Democrats for tighter regulation, which could fuel selling pressure.Canada's best source for investing news, analysis and insight.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Investor will soon be in your inbox.We encountered an issue signing you up. Please try again“The midterms will be critical not for the immediate risk of federal policy restricting data centres but to lay the groundwork for potential legislation toward that end in 2029,” Ariana Salvatore, head of U.S. public policy research at Morgan Stanley, said in a note.History suggests that whatever happens, the midterm elections are unlikely to knock the stock market off its course. The S&P 500 index has risen in the 12 months after every midterm election since 1946, according to Wells Fargo. President Donald Trump’s veto powers can keep Democrats in check, a recipe for government gridlock that might create stability for investors. The Cboe Volatility index signals little election-related turmoil, making it cheap to bet on price swings picking up.Compared with the 2024 presidential election, “the equity impact for the upcoming midterms across election outcomes scenarios will likely be more nuanced and favour stock picking,” JPMorgan Chase & Co. strategists led by Dubravko Lakos-Bujas wrote in a note.This advertisement has not loaded yet, but your article continues below.Here are the sectors worth watching with less than a month to go before the vote.Technology and AI infrastructureOver the next two years, Trump is likely to veto any legislation that is too unfavourable to the technology industry. That may limit risk to fundamentals for chipmaker Nvidia Corp., the AI rally’s poster child, and mega-cap peers such as Alphabet Inc., Meta Platforms Inc. and Microsoft Corp.Data centre real estate investment trusts and neocloud companies are negatively exposed to potential legislative proposals to levy a tax on computing power, according to Morgan Stanley analysts. Off-the-grid power providers such as Bloom Energy Corp., GE Vernova Inc. and Cummins Inc. may get a boost from more restrictive policies, the analysts said.Health careHospitals may benefit if Democrats manage to walk back Medicaid cuts included in last year’s tax and spending bill, said Tobin Marcus, head of U.S. policy and politics at Wolfe Research.Democrats looking for concessions in a possible debt ceiling negotiation next year may seek wins in health care, he said.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Hospital names such as Acadia Healthcare Co., HCA Healthcare Inc. and Tenet Healthcare Corp. have near-term upside linked to the election, according to Jefferies analysts. Insurers Centene Corp. and Oscar Health Inc. may see “buying pressure” on the hope that Democrats will negotiate to restore enhanced Affordable Care Act subsidies that expired at the end of last year, though the company sees reestablishing them as a long shot.DefenceShares of defence contractors have underperformed this year amid worries a potential Democratic takeover of Congress could lead to tighter oversight and funding delays. That sets up a “very wide” range of outcomes for spending in the fiscal year that started Oct 1., according to Melius Research. The Department of Defense’s budget would effectively fall 15 per cent if legislative gridlock means it is funded by a stopgap measure for the full year, analyst Scott Mikus wrote in a note.If Republicans hold their ground in both chambers, spending could rise and become a tailwind, according to JPMorgan. The company’s analysts point to L3Harris Technologies Inc., Lockheed Martin Corp. and Northrop Grumman Corp. as possible beneficiaries.This advertisement has not loaded yet, but your article continues below.Financials and cryptoRepublicans tend to favour lighter oversight of the financial sector, leading JPMorgan analysts to predict that a sweep by the party could favour banks such as Bank of America Corp., Citigroup Inc. and Wells Fargo & Co.Still, independent agencies and the executive branch wield a great deal of power over regulatory policy. With the heads of the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency likely to remain in place for the next several years, the election is unlikely to alter things like bank stress testing, Barclays analyst Jason Goldberg said in an interview.In cryptocurrencies, the odds for any legislation may decline if Democrats take control. Democrats, along with a few Republicans, blocked the advancement of the Clarity Act in September, sending stocks such as Coinbase Global Inc. and Circle Internet Group Inc. tumbling.HousingTrump and housing official Bill Pulte have offered few initiatives aimed at addressing housing affordability. The median home sales price rose 1.6 per cent from a year ago to US$429,100, according to September data. That, along with spiking mortgage rates, poses an issue for homebuilders and related sectors. The S&P 500 Homebuilders index has tumbled 25 per cent since its mid-February peak.This advertisement has not loaded yet, but your article continues below.Once the midterms are over, Congress may increase its focus on housing, according to Isasc Boltansky, PennyMac’s head of public policy. Easing supply constraints will be a “durable bipartisan priority, giving us a clear launchpad for the next Congress,” Boltansky said.Recently, Pulte renewed attacks on credit-score related companies, pressuring shares of companies such as Fair Isaac Corp. and TransUnion. Mortgage finance giants Fannie Mae and Freddie Mac soared after Trump’s 2024 win on optimism the administration would lift government control. They have since retreated as any potential action appears to be on hold.Potential probe targetsWall Street is bracing for Democrats to hold hearings and launch a wide range of investigations, with Evercore ISI telling clients that probes focused on AI could create market risk. The company also expects probes into sectors related to affordability challenges that loom large for voters, including energy, health care, food and agriculture.Strategists are preparing for potential scrutiny of companies that have won equity investments from the U.S. government, creating risk to their brands and share prices. That is a broad group that includes chipmaker Intel Corp., tech stalwart International Business Machines Corp. and rare earth producer MP Materials Corp., among others.—With assistance from Arvelisse Bonilla Ramos, Monique Mulima, Avalon Pernell and Bernard Goyder.We apologize, but this video has failed to load.This advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.