Quick take on midterms: Mood and motivation drove results
The midterms delivered a decisive result with Democrats winning control of both chambers. Most analysts, including me, projected another change election, but the breadth of the Democrats’ victory far exceeded most pre-election expectations. The outcome was driven less by a shift in ideology than by voter frustration over the cost of living and dissatisfaction with the incumbent party, consistent with historical midterm patterns.
Before Election Day, I argued that mood and motivation favored Democrats, while the map and money favored Republicans. Redistricting had netted (on paper) Republicans up to seven House seats, and GOP-aligned groups spent over four times as much as the Democrats. In the end, mood and motivation won out, reinforced by a broad shift away from the GOP across every major demographic group.
For investors, key questions remain around affordability, fiscal policy, interest rates and the AI infrastructure buildout.
- Affordability remains the leading concern
Affordability has become the organizing principle of American politics. This issue transcends party lines and is creating interesting political pairings—Elizabeth Warren and Donald Trump have both backed caps on credit card interest rates. Steve Bannon and Bernie Sanders have both rallied against data centers. These examples reflect a growing willingness among policymakers—regardless of party—to support government intervention when it promises tangible economic relief. The result is a political environment in which populism is increasingly competing with, and at times displacing, traditional left-right economic orthodoxy. For investors, the key implication is that policy risk may increasingly emerge from affordability concerns rather than ideological commitments.
- Demand for the AI-buildout will continue despite voter rebuff
Data centers emerged as one of the most contested issues of the election, particularly at the state and local level. Results in the Texas, Georgia and Ohio governor’s races carry particular weight, since all three states are central to data center development. Texas Governor-elect Gina Hinojosa campaigned on halting new approvals until developers bear more of the costs. Opposition was already slowing projects before Election Day. In the first half of this year, 120 projects were blocked or delayed, affecting nearly $200 billion of potential investment.
Political opposition will not change the underlying demand for AI infrastructure, power and transmission. What may change is where facilities are built, how fast projects move and who pays for the supporting infrastructure. Developers will increasingly need to show clear benefits to communities, workers and taxpayers to win approval. Private capital will remain central to financing the buildout, given the scale and complexity of these projects, but capital alone will not be enough. Lenders will need deep expertise in energy procurement and deal structuring.
- It is unlikely the federal deficit will shrink in the near term
Today the annual deficit exceeds 6% of GDP. The national debt eclipsed $40 trillion last summer, more than 100% of GDP. Social Security faces a funding shortfall as early as 2032. And bond yields have surged.
The problem is structural. Roughly three-quarters of federal spending is on autopilot through mandatory spending programs and interest costs, with Congress controlling only about 25% in discretionary spending. Meaningful deficit reduction requires tackling Social Security and Medicare, both of which remain political third‑rails.
Still, the conditions for change are emerging. A return to divided government, a lame-duck president who will never again face voters, and the need to address Social Security before automatic benefit cuts take effect in 2032 could set the stage for a grand bargain on at least one of the two biggest drivers of debt.
The next two years will bring plenty of headline noise: Investigations, messaging votes, shutdown and debt limit deadlines, and an early start to a wide open 2028 race. If there is one theme I would leave you with, it is this: The investment implications of the next decade are likely to be shaped less by which party controls Congress today and more by the collision of three forces: Cost-of-living pressures, fiscal constraints and higher interest rates. These forces will shape debates over health care, housing, taxes, energy and capital formation regardless of who holds power.
That environment rewards selectivity. Greater geopolitical volatility and higher rates are widening the gap between investment winners and losers across sectors, asset classes and managers. Investors who stay disciplined and focused on long-term goals, rather than the political cycle, will be best positioned.