Formal Gridlock Forms the Midterm Miracle’s Foundation

Editors’ Note: This post dives into politics, so we remind you MarketMinder favors no politician nor any political party, weighing elections and developments solely for their potential market, economic or personal finance effects.

The results are in, the dust is settling, and markets have identified the real midterm winner: Gridlock! The formal, party-line kind, as the Democrats take the House and Senate. (The secondary winner is America, now free from nonstop political ads and spam texts for at least two days, before 2028 primary campaigning starts.) The backdrop for stocks’ most consistently positive nine-month stretch is in place.

We aren’t referring to the S&P 500’s 1.6% jump Wednesday, nice as it is.^[i] That may just be noisy relief at having clarity, but daily swings defy clear explanations. No, we refer to stocks’ history of strong returns in midterm year Q4s plus the next Q1 and Q2. This stretch hasn’t fallen once since the Great Depression. Not. Once. And since good data start in 1926, the S&P 500 averages 19.8% in the full span.^[ii] It doesn’t matter who is president, which party the president is from or which party “wins” at midterms. The real X-factor: The president’s party almost always loses seats, creating gridlock that vaporizes legislative risk. Businesses don’t have to worry about big legislation rocking the boat (and future profits) for two years. They can take risk, powering economic growth and returns. Stocks love it, even if voters hate it. This is the Midterm Miracle.

Yes, we got that gridlock last night, pending some final tallies. Democrats won the House and Senate, capturing toss-up seats and then some. But their Senate edge (presently 54 – 44 with two seats still to be called) isn’t a 60-seat, veto-proof supermajority. Absent something wild, like a bipartisan tariff repeal (we can dream), about all you will see is sand in the gears. Get ready for debt ceiling and government shutdown standoffs, followed by compromise that makes no one happy. Essential bills only, most likely, nothing radical or pie-in-the-sky. Magical clarity for markets.

Of course, gridlock doesn’t mean nothing happens. Democrats will now hold committee chairs, meaning they will set the agenda, determine what gets debate time, and who gets hauled in for hearings. Perhaps they will spend their time investigating President Donald Trump or members of his administration, as some have talked of. That will get loud. But they lack the votes to impeach on party lines, limiting how far this can go. It also isn’t clear the Democrats want to repeat 2019’s efforts when Trump is a lame duck with just two years remaining in office.

Similarly, they can hold hearings on industry regulations. Already, headlines warn Financials and AI firms could be in committee leaders’ sights. We saw several headlines Wednesday warning the Democrats’ win will derail the AI boom, and AI-related stocks sold off hard (again). But here, too, there is only so much Congress can do on its own. They can hold hearings, but hearings don’t mean much unless they lead to legislation. We have a hard time seeing Congress cobbling AI regulation that Trump would sign, given his consistent pro-data center stance.

Local election results perhaps mean more on this front. Several candidates who campaigned against data centers won, as did some ballot measures. But ask yourself: Has anything fundamentally changed? Maybe local leaders will offer fewer tax breaks and subsidies. But permitting has been gumming up the works for years. It gets more attention now, but the slowness isn’t new. Nor is the grassroots, NIMBY opposition. It reminds us a lot of sentiment surrounding hydraulic fracturing 15-plus years ago. That didn’t prevent the shale boom. Politicians compromised, and drillers innovated clever solutions to many of society’s gripes. The same could happen with data centers over time even if construction slows.

Regardless, the risk that planned data center investments don’t pan out isn’t new. Investors have been chewing over it for months. They scrutinize cloud services providers’ balance sheets, funding costs, permitting battles, cash flows and more. Meanwhile, while sentiment toward Tech has simmered down a bit, it remains high. To us, it points to the sector probably underperforming. Whether midterms sway that sentiment is worth monitoring, but that isn’t assured today. At any rate, we don’t see the election crashing AI and taking the entire market down with it. Just plodding while other sectors lead. But every bull market has its leaders and laggards. Tech underperforming doesn’t make this one fragile or negate the Midterm Miracle.

Ultimately, with the vote behind us, we are likely to get a (brief!) reprieve from politicking before all attention turns to 2028. It should also quell some fears that have lingered like zombies over the past two years. Democracy functioned and the election happened, assuaging some (mostly non-American) worries over the US political system’s vitality. Fear Trump packing the Fed with puppets? Beyond the fact Chair Kevin Warsh hasn’t done his bidding, the Senate confirms candidates. The Democrats will control it come January—a sharp force muting that fear.

Politics are only one market driver. But with gridlock in place and economic drivers still looking bright, stocks should have ample room to run. Love or hate Tuesday’s results, we think that is worth cheering.

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[i] Source: FactSet, as of 11/4/2026. S&P 500 total return on 11/4/2026.

[ii] Source: Finaeon, Inc., as of 9/28/2026.