Phil Bain, senior investment director at Rathbones Investment Management International, looks at the possible market responses to last week’s election results
THE Republicans have decisively lost the mid-terms, losing control of both the House of Representatives and the Senate. What does this mean for investors?
AI was probably one of the most important themes that shaped mid-term voting. There are two main areas for investors to focus on: the AI infrastructure buildout and regulating the development of AI models.
It was expected that, regardless of the mid-terms results, there would be policies introduced to reduce the growth of AI data centres. Analysts believe that in 2027, we will start to see statewide moratoriums to slow AI data centre buildout. So far, 36 states have a local data centre moratorium. At present, only New York has a statewide one.
To date, US President Donald Trump believes AI model regulation is not necessary. He sees it as a headwind to development, allowing competitors (notably China) to catch up. But even some of the industry’s senior executives and wealth-owners have called for regulation. Anthropic’s Form S1, its initial document to prepare for a stock market listing, asks for this.
Market focus will also turn to the Middle East. If the Democrats can facilitate credible de-escalation, oil prices will drop, and this could boost equities and corporate bond prices, as lower rates and energy prices raise economic growth and corporate margins.
Trump, though, has said he will resume attacks on Iran following the mid-terms. If so, the risk to energy prices, inflation and interest rates are to the upside. But this war is widely unpopular in the US and the Democrats will use their new congressional majorities to try to stop it. Their incentive is sharpened by the popularity it might generate among voters, as the country heads towards the 2028 presidential election.
Therefore, there is lots more for investors to think about, though analysts have noted that, since the end of the Second World War, the S&P 500’s best performance over any 12-month period has always occurred in the 12 months immediately following the mid-terms.
This suggests that, despite investor fears that Democratic pushes for regulation could hit some sectors, there is scope for a rise in equities. But there is no guarantee that this pattern will be repeated.
Much depends on how President Trump, ever unpredictable, responds.
