Inside Wall Street's Rally Following Democrats' Decisive Midterm Victory

0:03Hi, everybody. I'm Brittany Lewis, a breaking news reporter here at Forbes. Joining me once again is Paul Auslander. He's the president of Seabridge Private Wealth. Paul, thanks so much for coming back on.

0:13Paul Auslander: Thanks for having me, Brittany. Good to see you. It is a big news day today. Yesterday was the midterms. Today, we are dissecting the results from the election, and I want to talk about the market's reaction to those results. Democrats regained control of both chambers of Congress in a blue wave that has been widely viewed as a referendum not only on President Trump, but Republicans across the country. This was a decisive victory for Democrats and Wall Street rallied in response to the news. On Wednesday, we saw the Dow surge by around 1 ,500 points, while the S &P 500 and the Nasdaq also posted gains.

0:48So to start off the conversation, what do you make of the market's response?

0:52Paul Auslander: Well, I think it's validating for what happened yesterday, right? I think the market was very happy to see that and it reacted accordingly by going straight up today. There was some concern because I think the House changing over from Republican to Democrat was priced into the market, but most people didn't think the Senate would go as well. And there was some concern that if both houses went Democratic that you might have a negative reaction to the market. That certainly didn't happen. And I think this probably will continue, not quite at this level, but I think it'll continue for a while. I think the market's like a little bit of balance.

1:27Paul Auslander: And history shows us that after midterms, and it doesn't matter really which party, markets tend to be up 13, 15 % within a year from the time of the midterms. So everything points in that direction right now. When you're thinking back now to the last almost two years of President Trump's second term, there's been a lot of uncertainty, whether it be his tariff policy or the war against Iran, does this landslide victory that the Democrats had, and what seems to be this repudiation of President Trump's agenda, does this remove that uncertainty from the market? I think it does to some degree. You know, it's not quite as simple as that, unfortunately.

2:05Paul Auslander: You know, the Democrats have a, they're caught in a catch-22. They probably have a temptation to go after the president and his allies, and I'm not sure the voters wanted that. I think the voters wanted some simple problems solved. And they're not that simple, but they're direct problems that need to be solved, which is costs out of control. There is the issue, and all the surveys have shown it, that corruption is a factor. But I'm not sure they want endless investigations and impeachment trials. I think they want, as Governor Shapiro in Pennsylvania says, get stuff done. He doesn't use the word stuff.

2:39Paul Auslander: But the point of the matter is that I think that's what the public is looking for, some results rather than endless investigations. So I worry that the Democrats might be tempted into that instead of focusing on the work at hand. You know, that's pretty important because this relitigates again in 2028. And if the Democrats blow this opportunity, then that could be a factor. I think it's important to note that this election was not because the country thought the Democrats policies were the best in the world. They didn't like the Republican policies and they viewed this is an alternative. The Democrats still have to prove themselves.

3:13I think that that's an important nuance, but I'm curious, does Wall Street care about nuances like that, that some people suggest, hey, this isn't exactly a Democratic win. It's more so the Republicans lost because Democrats, they have an approval rating that's underwater, right? So was this just a rejection of President Trump and Republicans, or was this an embrace of the Democratic Party? Based on that approval writing looks more so to be a rejection of President Trump and the Republican Party. But from Wall Street's perspective, does that matter?

3:49Paul Auslander: I think it does from the standpoint of things getting done, right? I think one of the things that happens and one of the reasons that Wall Street tends to like these midterms when they split this way, where in this case, the executive is one party, but the legislative branches are another, is gridlock tends to be freezing a lot of policies that might otherwise damage things. So I think Wall Street looks at this type of thing and go that neither side can get into too much trouble with this. And I think there's a lot of truth to that. From Wall Street's perspective, yes, Republicans lost. There's no more unified control of the government.

4:24Democrats come January will control the House and the Senate. But President Trump, he ultimately will have veto power. Does that move the needle at all?

4:33Paul Auslander: I think it does. I mean, it's still he still he still wields a lot of clout. You know, one of the jokes I saw, which I thought was very apropos, is this writer didn't think he's a lame duck. He could be an angry duck. And so that might be interesting. He has a tendency to show when he's angry. And that could happen in a number of ways, particularly in foreign affairs, where he has a little bit more latitude as president of the United States than he would have to go through Congress. Now, Congress will try to stop him from some of these things. But, you know, President Trump, if he puts his mind to something, he's going to try to get something done.

5:07Paul Auslander: So I think that tug of war eventually might lead both sides to say, you know what, maybe we should sit down and try to work this out. That's my hope. Now, some people have said to me that's naive. But I really think at his core, Donald Trump's a businessman and he knows sometimes you have to negotiate even if you don't want to. And I think the Democrats, if they're smart, will listen to that. President Trump, as those results were trickling in last night, he did a ton of interviews. He was talking to a bunch of different outlets. And in one of them, he admitted defeat. He said that he accepts the results of these elections.

5:45He said that Democrats did a good job. He said that he was talking to Democratic leaders and that he wants to work with them while he can. He did also say with the caveat, I have a veto power. He did post at one point within the past 12 or 24 hours a MAGA hat that looked like a MAGA hat, but it had the word veto on it. How much do the markets care about that? Does the rally or did the rally contribute to the fact that President Trump seems to have this openness and willingness to compromise?

6:18Paul Auslander: I think you're spot on. I think that had more to do with today's rally than anything else. I think there was a huge collective sigh of relief when President Trump did say that, because if you recall, there's been a lot of talk about contesting the election, different types of rigging that they were talking about, all sorts of, unfortunately, accusations before they even occurred on some kind of challenge to the election. him saying that he accepts the election for what it is, I think, again, made people feel pretty comfortable in that that that rally today could have been a relief rally just from that standpoint alone.

6:53Paul Auslander: Nobody wanted that type of thing litigated again. If nothing else, one of the great parts of this country, and we have a lot of them, is our elections. They're free and they're fair. And every time someone implies that they aren't does damage to our credibility. I've had conversations all day today about the election results, mostly from strategists and political analysts. So I was really looking forward to this conversation because you're a certified financial planner. From your perspective, what do you make of the results that perhaps is missing in the conversation when other people like strategists and analysts are talking about these election results?

7:29Paul Auslander: Well, as a financial planner, one of the things we try to do is observe the Hippocratic author They're doing no harm, right? So if a client's risk tolerance hasn't changed, then there's not a big reason to change their portfolio, their allocations. It's important to get with the clients and talk through these things because it's amazing to me how much politics impacts their feelings about their financial security, much more so. I've been in this business a long time. I've never seen as much attention paid by people who normally didn't really care about politics or what's going on. But now it feels like that's front and center in the conversations.

8:06Paul Auslander: And so I think a lot of my job is just to be that calming influence and say, look, nothing material for you has changed. If you're not ready to retire tomorrow as opposed to five years from now, we're not going to reallocate your portfolio. There may be some things around the edges that we would want to do, depending, again, on what happens with data centers, which is a big part of the growth story in this economy. Things might want to be altered. But in general, the key with our clients is we've already talked to them about the things that we need to do between now and the end of the year. And I've told everyone, basically, let's stay the course.

8:42To that point, what does that mean for investors in the days and months ahead? Is it stay the course until something happens? Is it stay the course? And will also, while we're staying the course, prep in case something happens? What does that specifically look like?

8:55Paul Auslander: Well, I think any solid portfolio has that built into it, right? There's always, you're looking at the time horizon. If somebody has a time horizon of at least five years, there's no altering that's really necessary, right? If they're going to do something in the next year, including retirement, then yeah, you've already made those moves to make your portfolio more defensive going into that period. But in general, no, I think, again, a lot of this depends on the time horizon that the client has and communication with them to make sure that we're both on the same page and that they're not thinking something that they haven't shared with us.

9:30Paul Auslander: I also think that in general, the economy has been fairly positive. The earnings have been really up. There's nothing to suggest that that won't continue. Interest rates were a fear of being, the rise in interest rates was a fear for many people that it might slow down the market, But that's not been the case. In fact, there's been some relief that the Federal Reserve has been recognizing that inflation needs to be tamped down. And the only way to do it, the only blunt tool they have, frankly, is raising interest rates. And they've done that. The question remains, will they do that again once before the end of the year?

10:04Paul Auslander: But that would seem to be a threat. And that's gone away, too. This market seems to perform even with the rise in interest rates. So I think that all things considered, we're in pretty good shape. And you did a few comments back mention data centers. And I know that Republicans and Democrats alike have expressed concerns not only about artificial intelligence, but data centers as well. And polling shows, though, Democrats want more regulation than Republicans when it comes to both AI and data centers. Since Republicans now have control of the House and the Senate, how does that change the way you look at data centers?

10:40Paul Auslander: It doesn't change anything because, first of all, that's a local issue more than it is really on any federal level. I mean, there may be some pushback on a federal level at some point, but we're only in the second inning, maybe the third inning, if we go with baseball analogies of this AI buildout. And data centers are a big part of it. that they need the power. The technology industry has done an absolutely abysmal job of meeting with local folks, local residents, local politicians, local administrators to try to make sure that the public understands what's happening instead of a data center coming in, promising all sorts of jobs and then slowly deteriorating their land usage and their water supply.

11:21Paul Auslander: So I think that increased communication and I think more mixture between the data center companies and actually the communities that they're going into will help try to ease some of those issues. It looks like the results from yesterday, Democrats have a decisive victory. They won by a landslide. They won in places that they haven't in decades. From your perspective, when you're listening to all the commentary surrounding the results of the midterms, is there anything that you think is missing from the conversation? No, I think it goes back to the very first couple of sentences we talked about, which is, let's not confuse the reason that this happened, that the Democrats have suddenly a wonderful solution to the world's problems.

12:10Paul Auslander: The Democratic Socialist side of the party is going to continue to be a problem for them. It's a growing area in the Democratic Party, but it's still a small area. And I think the public has overwhelmingly said that that's not necessarily what we want, other than in certain pockets of the country. And I think the Republicans have to recognize that some of the heavy handedness that they had done, coupled with the fact that they had a majority and they still weren't putting any checks on the president, didn't sit well with the country. So I think they have to understand why they've been put into power.

12:42Paul Auslander: And then I think they have to deliver on that part of it. I think that's going to be the big challenge going forward. And let's say they don't. And let's say because Democrats are now saying, hey, our party is Big Ten enough that we have more moderate Democrats here, that we also have Democrats that are either DSA backed or are members of the Democratic Socialists of America. If the DSA faction of the party ultimately wins out, ultimately becomes the majority, if it does, what do you think that means? How do you think the markets would react to that? I think the markets will react poorly and I think the party, Democratic Party, particularly if they're in power, will face the same results that the Republicans did yesterday.

13:26Paul Auslander: I think that's a big, if you listen to some of the smarter, and that's a word I throw in air quotes, smarter members of each party, that seems to be agreed upon. This is a country that, other than certain fringes and possibly college students, understands that socialism isn't the cure. There are some issues that could be improved upon here in the way that we do things. But going to an abject socialist system has already been shown in multiple countries not to work. So I don't think that that's going to be a factor. And I think if the Democrats do try to do that, they won't be in power very long.

14:01Paul Auslander: Remember, 2028 is not only a, quote, midterm year. It's not really a midterm, but it's an election year for congresspeople. But it's also a presidential year. And if the Democrats have any hope of fielding candidates that can tell a good story and get themselves elected, it's not going to be on the socialist side. It's going to be on the moderate side. And my last question to you before we close out here, from someone who watches the markets carefully, from someone who's a CFP, what specifically are you looking out for next? You know, there's always the worry that certain industries, certain companies, certain movements, AI being the latest, gets ahead of itself too far too fast, which creates a bubble and then all of a sudden some kind of letdown.

14:50Paul Auslander: I don't necessarily see those factors in this particular movement because I think the adoption of AI, even people that are nervous about it can't get through the day without hitting chat gbt or or or google gemini at least i think i saw at least 10 12 times for the average person which is kind of crazy considering five years ago you didn't have that as a profession so i think the use is there i think people are interested in it i think the the concern of course is just getting ahead of itself and then i you know something we haven't talked about now if if if you just want to go one step further.

15:25Paul Auslander: I think this particular group of senators that have come in, keep in mind that they're going to be in power during their term at the time that it's estimated that Social Security will run out. I think if they have something to tackle right now that they need to work on, it's funding that system and making sure that that holds true. That's more important than the markets in a lot of ways, because there are a lot of people that depend on that system. And there has been the kicking the can down the road for a number of years, and they're at the crucial point now that they need to do something. There's some problems that can be solved with that.

15:56Paul Auslander: I think they can be solved relatively easily. If we see some leadership, both parties would, it would force them to sit down and negotiate and solve that. But I'll tell you, I think the American people would react very well if they would just take that stand. I think that that's a really important conversation, obviously. And it's an issue that's not talked about enough, right? Unless it impacts you, of course, social security. And I know a few members of Congress, is some members in the Senate there. That's a really big issue for them. But it's not a headline grabbing issue, really. It's not that sexy issue, Social Security.

16:30How easily could that be solved? And I mean, I know you can't fix Social Security in a day, or do you think you could?

16:36Paul Auslander: I don't think you can fix it in a day. It takes some leadership to do this. But there are a couple of strategies that can really prolong the system. One of them is to remove the caps so that it It effectively creates a silo of money coming in. As you know now, the social security tax caps out at a certain level after which no more both the employer and the employee pay into the system. Take that cap off and let that continue. In the way that that would work, higher income earners would pay a higher share of social security taxes, but it would have the effect of funding the system and actually building up a reserve for the system.

17:18Paul Auslander: And most people, once they got used to it, probably wouldn't care. Number two, raise the retirement age. It doesn't have to be a lot. It's 67 now. Take it to 68 or take it to 69. I've seen a couple of studies that show just doing that will prolong the system another 20 years. So there are things that you could do on a bipartisan basis. I'm sure they'd negotiate this out, but I think it's a worthwhile project that both can sink their teeth into. And do you think now, because Democrats control the House and the Senate, President Trump obviously is in the White House, there's more or less appetite to fix Social Security?

17:53Paul Auslander: I think there's more. I think it helps to have an 80-year-old president who doesn't need Social Security but probably hears it from other people. And I think the Democrats, of course, look at the genesis of Social Security, the New Deal, Franklin Delano Roosevelt. I think the Democrats like the idea of being the ones that save it. I think you could really get both. I mean, that for me would be a win all the way around, because I see that as being a problem that all of a sudden, if you wake up one year and you have problem paying Medicare claims and problem paying Social Security benefits and have to get on television and say to retirees, I live in Florida, so everybody would be glued to the TV set and say, listen, we're going to cut your benefits by 25%.

18:30Paul Auslander: You could see something akin to France happening in this country. And it's not going to be a bunch of college kids. It's going to be a bunch of 80-year-olds with shovels and a pitchfork. Well, we have certainly a lot to look out for when it comes to Social Security and other issues as we see this next Congress take shape. Paul, thank you so much for joining me. Per usual, always a great conversation. Until next time. Thank you. Thank you, Brittany. Good to see you.

19:07Thank you.