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A Blue Congress Hands Bonds the Win and AI the Bill
Democrats now run Congress. Bonds cheered, tech flinched, and your playbook needs a rewrite.
Voters handed Democrats both chambers of Congress, and markets answered by buying bonds and selling the AI trade. Here's what two years of divided government means for your money, and the two names built to handle it.
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What Actually Changed
President Trump keeps the veto, his tariff authority, and control of the regulatory agencies. What he loses is a Congress that passes his agenda.
Further tax cuts and new spending programs now need Democratic votes, and Democrats don't have the margins to override a veto.
The likely result is two years of gridlock on legislation paired with far more oversight through hearings, subpoenas, and the power of the purse.
Morgan Stanley noted before the vote that the biggest market swings since January 2025 came from executive action, not legislation. That still holds for tariffs.
A Democratic Congress can hold hearings and votes on trade, but undoing tariffs outright would still run into a veto. Expect more noise on trade and little change in the rules you trade under.
Why Bonds Read It as Good News
Gridlock usually means less new spending, and less spending means less Treasury supply.
Analysts quoted in overnight market coverage pointed to a modest brake on spending, shelved tax-cut plans, and slower AI investment as reasons the Fed may face less pressure to keep hiking.
Fed funds futures trimmed expected rate increases for next year, and 2-year yields slid to a nearly two-month low overnight.
That matters because the economy is still running warm.
The ISM manufacturing index rose to 55.5 in October from 54.5 in September, its 10th straight month of expansion, with input prices still elevated. September job openings jumped to 7.5 million.
The Fed held at 3.75% to 4.00% on October 28 and meets again December 8 and 9. A political brake on fiscal policy is one of the few forces that could cool things without another hike.
The catch: Ed Yardeni warned that a Democratic sweep could complicate negotiations over spending and the debt ceiling.
Prolonged shutdowns and fiscal standoffs would push yields higher, not lower. So the bond rally holds as long as gridlock stays orderly.
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Why the AI Trade Took the Hit
Data centers were a campaign issue in several of the states Democrats flipped, including Iowa, Kansas, North Carolina, and Ohio.
JPMorgan analysts warned of an AI selloff on expected tighter regulation, and Evercore flagged the risk of new pauses and restrictions on data-center development in 2027.
The Nasdaq-100 had already slipped into correction territory before the votes were counted, so a new policy headwind hit a market already on edge.
Health care and crypto face their own policy paths. Democrats gain leverage over Medicaid funding through must-pass spending bills, which matters for hospitals and insurers.
Crypto's push for a market-structure law, which already stalled in the Senate in September, will likely come with stricter consumer safeguards.
How You Position
Lean on bonds and quality. If gridlock caps new spending, intermediate Treasuries and high-quality bond funds stand to gain. Short-term bills still pay close to the Fed's 3.75% to 4.00% range while you wait for better stock entries.
Trim what depends on Washington. Data-center developers, the most aggressive AI infrastructure names, and companies that rely on federal contracts or crypto rule changes carry the most policy risk for the next two years.
Own the businesses that profit from uncertainty. Exchanges and data providers earn fees whether stocks rise or fall, and a policy fight over spending, tariffs, or the debt ceiling tends to keep trading busy.
Keep a hard-asset hedge. A weaker dollar and steady central bank buying support gold, and a gold miner gives you that exposure with a dividend attached.
Top Picks
Nasdaq, Inc. (NASDAQ: NDAQ) |
Newmont Corporation (NYSE: NEM) |
Setup Scorecard
Entry Zone: NDAQ $100 to $106 | NEM $100 to $108
Target: NDAQ $122 over 9 to 12 months | NEM $130 over 12 months
Stop Loss: NDAQ $94 | NEM $92
Catalyst Timeline: The October jobs report on November 6, October CPI on November 10, final House race calls in the coming days, and the Fed meeting on December 8 and 9
Confidence Level: Medium. The policy direction is clear, but the bond rally depends on gridlock staying orderly, and a shutdown or debt-ceiling fight could reverse it.
Where This Leaves You
The core shift: Democrats now control Congress while the White House keeps the veto, so new spending and tax cuts stall while oversight of AI, health care, and crypto ramps up.
What it means for you: Bonds and quality cash generators gain, while AI infrastructure and Washington-dependent sectors carry more risk than they did a week ago.
How to play it: Own NDAQ for steady fee income in a noisy market, add NEM as your dollar and fiscal hedge, and keep cash in short-term Treasuries while the AI trade sorts itself out.
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That’s it for today’s edition—thanks for reading! Reply to this email with any feedback or let me know which macro trends or markets you’d like me to cover next.
Best Regards,
—Noah Zelvis
Macro Notes