Trump's Midterm Defeat: Why Stock Markets Are Surging

0:00It is Wednesday the 4th of November and the Democrats have swept both chambers of Congress and notched historic state wins, including flipping the Texas governor's mansion and Senate seat, shattering two years of unified Republican rule. While Asian bosses and tech stocks initially tumbled on fears of aggressive AI infrastructure oversight, US index futures have staged a pretty quick turnaround. So in this episode of the Market Maker podcast, we'll look to unpack the mechanics of divided government. So why bond yields plunged, how green energy stocks exploded higher, what a Texas data center moratorium means for hyperscalers, and whether gridlock in Washington actually delivers the best case backdrop potentially for macro investors.

0:48As ever, to go through this, joined by the one and only birthday week oh yeah Piers Curran that's right

0:57Piers Curran: birthday week do we get a birthday week I heard someone else saying that the other day so I'm using that terminology now it used to be birthday but I think it's just been it's been upgraded right right it's got to make the most of it right you're not getting any younger Piers well that's a fact that you can say and apply to everyone on the planet so So, although, yeah, well, I'm obviously not going to reveal my age because that would be depressing. Well, yeah, drop us a comment. How old is Pierce Clarence? That's your first quiz question of the day. Be nice. All right. Well, look, let's get into this one then.

1:42So, yeah, I woke up after my wife this morning and she came in and she was obviously in the news. and I was like, well, no. I went up and said, okay, so what was the outcome? Blue wave. And I was like, oof, that's going to be a nasty looking equity move.

2:02Piers Curran: I thought an Anthony Chung would be like intravenously consuming news somehow throughout the night. Do you know what? In my former life, that would have been the case. But as a recovering market addict, i now dare not dip my toe into something like this otherwise i won't sleep for 24 or 48 hours so i like not to touch it pierce recovering market addict yeah there's a few of us in that in that that group um yeah but look it was uh well obviously yeah what blue wave right i mean people were thinking oh is it gonna or the democrats sorry the republicans were kind of hoping i had terminology like no it's not going to be a blue wave it's going to be more like a blue spritz i think is what i heard which is like a watered down it's not a wave right but actually it is a wave um so hang about you've got tsunami wave yeah right spritz shower spritz that's right yeah so in that highly technical framework of uh measuring the size of election swings We're in the wave category here.

3:15Piers Curran: It's not tsunami, for sure, but it's definitely, it's decent. You know, you could say Trump has had his ass handed to him here. Although, of course, he's not up for elections. So let's maybe just start with some basics here. This is the midterms where it's Congress. It's the Senate and the House of Representatives where not all seats, but a lot of the seats in those two um houses are up for election so obviously you know it's it's a very key moment in any president's term because it becomes it's right in the middle hence the midterm right so trump's been in office coming up two years and look it is the case that every the kind of incumbent president slash party, always, always, always loses seats.

4:03So I think

4:05Piers Curran: to start with, whilst obviously the media loves a bit of Trump bashing, and look, he has definitely been pummeled here, but this isn't like outlandish. It's not like, look, there's two, you have the president, the way the political system works super quick, Congress is made up of two houses, You have the House of Representatives and the Senate. Now, House of Representatives has a lot more seats. So there's a bigger swing of seats. So we're looking like something in the order of low 40s. That's in 40 seats swinging that used to be Republicans swinging to Democrat, right? So that kind of size swing, it's not that unusual.

4:45Piers Curran: Trump himself had a 41 seat swing last time. That was the 2018 midterms. Obama, I mean, in his 2010 midterm, Obama lost 63 seats in the House, which is actually one of the biggest of all swings, right? Clinton lost in the 50s. So look, it's not unusual, that kind of swing. In the Senate, a lot less seats. The swing's much smaller. I mean, what's key here is that the Republicans have lost the House and the Senate. So that's the most important thing, right? So meaning that the majority has swung now into Democrat hands. So the Democrats have the majority of votes in both houses. And we'll get on to why that's important and why markets have reacted in the way they have it in a sec.

5:33Piers Curran: But on the Senate side, there's seven. We know that he's lost seven seats. So seven Democrats of one flipping their Republican counterparts out. There's two or three more seats up, the votes aren't in yet. So that could rise to maybe eight or even a nine-seat swing. But again, Obama, he had a nine-seat swing in the Senate in 2014. So Clinton had an eight-seat swing. These aren't unusual numbers, is my point, even though the media is very short-term. And obviously, right today, it's like Trump bashing for sure. And absolutely, he's lost handsomely. But this isn't like beyond the realms of norm, to be quite frank.

6:16Yeah. And I was doing as one does in these days of, you know, financial market punditry, which was having a look at Polymarket and Kalshi last night. Just to see what the real brains in the market are saying about this. That's interesting.

6:32Piers Curran: What were they saying? It was pretty much maybe not to quite this degree for the Senate. But yeah, it looked pretty conclusive, the evidence in the betting market, that something like this was going to transpire. Yeah. I mean, historically, the more traditional pollsters tend to be leaning more Democrat bias. If you take the average of the polls, they'll tend to be too blue, if you like. Do you need pollsters nowadays that you have polymarket? Yeah, I don't know. Because who's on polymarket? I mean, it's the public, but it's not just the public. You've got the hedge funds are all over polymarket these days trying to find edge, trying to find arbitrage.

7:26So, yeah.

7:27Piers Curran: I mean, do you call it the smart money? I mean, what do you, I don't know. I just feel, yeah, I mean, I'd love to, if anyone has any like, I don't know, some data points looking at it in terms of accuracy of these markets and how they play out and play out in reality. It'd be, yeah, one would imagine that, I don't know, the real time pulse of it and yeah, the participants and the matter of money involved, not just as an outcome, but through the process means that there's always going to be smart minds involved. And there is a bit of a side story. I'm going way off topic here, but I was listening to a podcast a few weeks back and they were just talking about how actually some of these sort of polls, you know, are ripe for corruption.

8:16Piers Curran: I can't remember a specific example now, but basically you're obviously betting on a certain outcome. And often these polls, as a binary outcome. It's like yes or no. And then it's, you know, you're betting the percentage likelihood of yes versus no, right? And you place your bets. But of course, some of these outcomes can be influenced. So you're getting a lot of bribery going on behind the scenes to force a yes outcome, let's say, because someone's got a load of money riding on that. And it's very much in their interest to hand over a few brown envelopes. So there's a bit of that going on in the mix as well.

8:53All right. Well, anyway, we're not here to talk too deep on the politics side, albeit this is a political event as a catalyst. So there's no getting around it to some degree. But let's talk about how the markets reacted. Because, yeah, as I said, when I got woke up this morning and told it was a blue wave, my initial thoughts were, oh, I wonder how bad it is overnight in terms of thinking of equities, that is, and the old AI infrastructure play and so forth. So walk me through stocks and why that is a reaction effect and then why we've rebounded and how does it look across different asset classes and products?

9:34Piers Curran: Yeah, well, broadly, well, it was interesting because actually Asian markets overnight were the first ones to be kind of in real time starting to react to this stuff as each sort of district, you know, announced their results and seats started to swing and flip. And I think it is notable to say that some of the seats that flipped are in some of the really big swing states when it comes to presidential elections and stuff. So you had like seats in Pennsylvania and Iowa and Michigan and Ohio, they flipped from Republican to Democrat, which is really important. You mentioned Texas, which is crazy to think that you've got some Texas seats flipping to blue.

10:17Piers Curran: And that I'll talk about a specific market reaction to that in a second, which is interesting. But look, generally, you're thinking, you know, what's the Trump trade? You know, the Trump trade is big, you know, AI infrastructure build out. Let's definitely not regulate AI and get in the way because we don't want to lose the race that we're in with China. Okay. That's a really big one. You've got other stuff like deregulation generally, you know, he's very pro-crypto markets, for example. But that Trump AI trade is perhaps what people were most concerned about just because, as we've talked about many times on these episodes, that AI trade is the whole thing.

11:06Piers Curran: It's the whole economic engine at the moment. the entire, certainly the almost entire US economy is reliant on it. Nevermind then, you know, knock on effects in the rest of the world. And obviously certain places like South Korea are mega geared towards the AI trade. So anything that gets in the way of the AI trade is a real problem, which is why Asian markets last night actually started to really negatively react as it became clearer and clearer that it was going to be a blue wave. So they're worried that all of that AI trade scenario is just going to get rode back and reversed and the brakes are going to get slammed on.

11:45Piers Curran: So you had like, you know, the South Korean stock market was down sharply. The Nikkei 225 was down 5 % at one point overnight. You know, SoftBank, Japanese kind of venture capital, all geared towards AI, that stock was down 10 % overnight. So the initial thought was panic the ai trade wheels are coming off right however you look at markets now so it's all reversed and actually thinking about the s &p specifically and thinking about the futures market which does trade through the night um the s &p tanked i think by the time we got to sort of midnight it was you know off pretty handsomely um but then as reversed and we're trading i'm looking now actually we're looking at opening over one percent higher on the S &P so the whole thing has reversed so you've seen a really interesting mix now if we dive under the bonnet and look at some different asset classes there's one new strand that comes to light that actually starts to make you understand why you we've seen a rebound in stocks and it's a bit more nuanced So one of the key moves here has been in the US Treasury market.

13:03Piers Curran: So US government bond yields have dropped a decent amount. So you look at 10-year US Treasuries, they're down seven basis points. The five years down nine basis points, the two years down even more. So yields have dropped. So what is that all about? Well, that actually is about what we typically see when you get a locked Washington. When you have a president that's from one party, Trump, he's Republican, and then you get Congress is the other party in terms of who's got the majority there, Democrat. Remember, for any law to pass in the US, all Congress, which has two different parts, Senate, House of Representatives, and the White House, there's three elements, right?

13:50Piers Curran: All three have to sign off on a new law. And so when we talk about this kind of Washington's locked, it basically means there's a divide and it tends to mean that no new legislation gets through. Anything that Democrats propose, fine. They'll get it through in the Senate and the House because they got a majority. Trump will veto it. Nope. And then vice versa. Any Republican policy Trump wants, well, of course, Congress will block it. So you tend to get gridlocked. Now, what does that mean, it probably means spending doesn't go up as fast as it might have done, you know, if you had Republican clean sweep or if you had the Democrats fully in charge, right?

14:32Piers Curran: So you tend to get less fiscal expansion. Now, that's one of the key worries. Why has bond yields been on the rise all year? And we've had a really, really, really big move in bond yields, which has fed into other things like, well, the cost of borrowing, of course, goes up. We've just had quarterly earnings season. It was really interesting to see the different reactions in the hyperscalers as they announced their results and stuff. You know, you had Microsoft actually going up, but then you had Google drop 12%. Intel were down like 30%. And the whole thing was around their spending. and Google were just doubling down on spending on AI.

15:12Piers Curran: Okay, fine. The growth on their search engine core business was slower than we had wanted, which also played into that big 12 % sell-off. But look, it's about spending. So if yields drop here, which they have, it means borrowing is cheaper, right? And so that has just calmed people's, let's say concerns around government borrowing because we know that's on an unsustainable trajectory but also then corporate borrowing when it comes to that big kind of ai spend so the whole yield reaction here has fed back into stock markets going up and when you're looking at some of those hyperscalers i mentioned microsoft right now it's up four percent Apple's up three Amazon's up 5.5 % here you know these are big big big moves and it's about that cost of borrowing that's that's flipped so that that has kind of countered let's say anybody's concern about the halting of the big Trump AI trade how about in the commodity market that's kind of I guess I guess oil is a little bit of a a case in its own because there's other fundamentals at play that are going on the supply side and the u.s iran conflict but what about ones that are more tied to the yield move that you mentioned so things like gold and they're probably definition the u.s dollar and copper because we fundamentally are talking about this ai infrastructure trade yeah so yields down right so that typically from a currency point of view is bad news for your currency.

16:59Piers Curran: So the dollar has devalued. So we've actually had a pretty big move in the dollar across pairs here today, like the pound against the dollars just where it's actually dropped back a little bit. It was above 1.35, which was like an eight week high. So the dollars weakened quite considerably. Now that feeds into gold normally, and certainly when you get short term big dollar moves, you tend to get gold particularly having an inverse correlation to that. So big dollar move down, typically in the short period, typically means gold pushes up. So gold's up over 2 % here, breaking back above the$4 ,000 handle.

17:37Piers Curran: So that makes sense. People might be talking about safe haven in here, but I don't think so. That gold move, I think, is a pure dollar drop play. Because when you go and look at things like industrial metals, like copper, so copper's the metal of the AI trade, right? So you think about that. Well, okay, what's going to happen is that, you know, if anything, well, let's talk about Texas because there was a big interesting swing in Texas. All right. And one of the big kind of things on the ballot here was data centers. And actually the Democrat that won one of the Texas seats run on this bill of, As you said at the top of the show, let's have, what was your terminology?

18:32Piers Curran: Moratorium. Moratorium, right. So instant moratorium on data centers. Yes, this was that Greg Abbott was ousted by Gina Ina Hoser. And then with James Tallarico defeated Ken Paxton. So the first democratic statewide win we've had since the 1990s, essentially. Right. Yeah, exactly. So that's a really big shock. and it's all about data centers so texas has been one of the big um pro data center states it's a republican state and they've been building data centers you know at pace um i think too fast is the thing right and i think certain communities are like look fine we were on board to start with but maybe we're going a little too far too fast here state stat line the data center construction in Texas, which is planned to account for more than 25 % of the planned US capacity by 2030.

19:30So a quarter of the entire country.

19:33Piers Curran: Wow. Well, I mean, it is a big place, Texas, like geographically. But yeah, that's huge, right? So I think there, you know, this isn't a vote against Trump or a vote against data centers necessarily. It's a vote against the speed at which they were adopting it. And I think, so therefore, what do you think? Well, if the most pro data center states hit the brakes, well, then of course, it'll slow down data center construction, which of course means things like copper, well, less demand for copper because they're not going to build as fast. So copper's down 1.5 % here off the back of this result.

20:11Piers Curran: Now, do understand that metals like copper and indeed a lot of the sort of, you know, data center plays have been sharply higher in recent times, right? I mean, copper has been trending to the upside for like two years, right? It's up, you know, anything above$6, which $6 a pound, you know, we're trading$6.36 right now, having sold off one and a half percent, that is still at like multi, multi-year highs, okay? So that 1.5 % move down in copper's in the grand scheme of things it's pretty small but it is going down so why isn't it going down more sharply well look you know in the end fine we'll just pick up our tools and we'll go and build one somewhere else right you know i don't i i think the demand opportunity is so like massive that where there's people an opportunity to make money yeah well this is a small hiccup in facilitating Well, actually, we were at a Morgan Stanley event last, well, that was on my birthday, actually, earlier this week.

21:24Piers Curran: Anyway, the reason I say it is I was talking to, it was an event being run for their clients. Someone was from Ireland there, and she was telling me about how the Irish are all over the data center build out, and they're one of the leading regions. And so if you can't build in Texas, it's fine, we'll just build an island. Or we'll build in another state. So it might just slow it down temporarily, but it's a speed bump, I would say. This isn't now a course direction change necessarily, in my view, which is why you're not getting big reactions here.

22:02You're on mute. Maybe as well a quick word about clean energy and solar. I did see, there's a couple of names. I mean, I don't follow these stocks particularly close, but Enphase, SolarEdge versus Solar. I mean, we're talking double digit pops on the upside here. Just explain that to me of why exactly that is.

22:24Piers Curran: Well, this is about Trump. Obviously, Trump is anti-global warming, let's just say, full stop, right? He doesn't believe it. So he's about, let's get as much energy as we possibly can. And I don't care if it's oil, gas, coal, or if it's wind, solar, whatever, right? But the Biden government was very much of the opposite opinion. Now, Biden had therefore put in place some really big tax breaks for green energy, okay? Now, Trump came in and basically has got rid of almost all of those subsidies. and the thought was you still if you stick with trump and congress stays republican then that direction of travel would continue in that 100 of the subsidies would be removed and so that's bad news for green energy stocks here the reaction has and so a lot of like hedge funds and stuff have been short a lot of these green energy stocks because of trump now what you've seen here is like some of the moves they've kind of gone like 20 to the upside some of these stocks and i think a lot of that is short covering.

23:34Piers Curran: So this is that legislative risk. So it's short covering because now I think the direction of travel will at least stop. So he won't be able to remove the remaining concessions. Trump will not be able to because that requires law, which requires Congress to sign it off, and they're not going to sign it off anymore. So the direction of travel, it might be this is the worst point. Obviously, you've got to start to think about the 2028 election and do the democrats win the white house and get a clean sweep in which case fine you're going to see maybe some of that some of those subsidies coming back right so i think this is maybe the market right here today calling a an end to the short strategy on green energy stocks because of Trump's policy.

24:27On the other end of that trade, because 2026, earlier this year, there was almost like a massive stampede of major defense IPOs. Yeah. So you had the Czechoslovak group was the one in Euronext in Amsterdam. There's been a number of US ones that are different in terms of, but all based in terms of some hardware, some software. but do you think that the heightened congressional scrutiny now that there's going to be over the iran conflict and therefore as well domestic pipeline permits and things of that nature do you think that that they kind of that that makes sense now we were kind of talking about it a lot steven and i at the time but this was the risk of this outcome as why they had to front

25:15Piers Curran: load it beginning first half of the year yeah right and so is this the perfect play that's right. I mean, what I would say is Trump, well, he's got till January. Hang on. Let's just make a point. These elections today come into effect in January. It's like when the presidential election is in November, they don't hit office till mid-January. It's the same for these senators. So he's now got a window of two months, right? So what's he going to try and get done in the next two months. That's one point. The other point is Trump is not shy about being inventive and using, let's say, a national security umbrella risk to just get stuff done, right?

26:01Piers Curran: And certainly when it comes to energy, you know, his point is this is a national security issue. And so, you know, it doesn't mean he can't continue to wield his kind of presidential pen when it comes to certain things. But yeah, with regards to Iran, for sure, I would say this election, more than anything, is a vote by the people against Trump's foreign policy. People do not like the fact that this war's going on in the Straits of Four Moves. One of the reasons is it's just domestic and selfish, if you like, from a domestic point of view, and that's the price of petrol is at an all-time high.

26:43Piers Curran: and that's what people feel on their day-to-day that's what they see you know we've got inflation back on the up and that's because energy prices have been high for many many many many months and it's feeding into other areas of the inflation basket so the fed had to hike right and it's all stems from the iran war that is the number one policy that trump has has been kind of voted down on today. So what happens next? Well, you could very much start arguing that Trump might seek a faster off-ramp here than he might have done if he didn't get handed such a blue wave. So what happens to the price of oil is perhaps a question.

27:28Piers Curran: And what we're seeing overnight, off the back of this, oil's down like 3%, which makes sense. It has been dropping for a week or so. Maybe a couple. Yeah, well, certainly over the last week, we've gone from 104 bucks on Brent crude. We're trading 90, or sorry, WTI crude. We've gone from 104 down to 93 now. So right now, the oil is trading at its lowest price since mid-October. So this makes sense. Are we going to get a quicker off-ramp from that conflict. That's what the market's trying to digest and mildly price in here. But we know that, you know, getting a peace deal signed is obviously one thing and that, fine, that removes the near-term, you know, future supply risk.

28:18Piers Curran: But, you know, getting this stuff back online properly, getting the Straits of Hormuz, you know, fully operational and supply flowing back to pre-crisis levels. I mean, that takes weeks, weeks, weeks, months, months, months, right? Yeah, I was just kind of reading about that very fact. I mean, if you actually think about it from a physical perspective, because it's easy to talk about these things and just think, you know, taps on and off sort of thing when it comes to supply. But, you know, I was looking at some of the lists, like clearing mined shipping lanes, restoring of damage infrastructure.

28:53These are all things that aren't like a light switch, which I think is often the sort of perceived nature of how these things are looked at. So is this in summary, then if you're looking at this thinking, OK, is it the best possible outcome the market could have hoped for in the sense of, as you said, the AI trade, let's just call it for simplicity's sake, is still alive. You rotate and go somewhere else. There's always other options, particularly I'm sure Ireland would love to build a few more data centers. I know they've got huge concentration risk with about four companies that make up a huge portion of their GDP.

29:36But, you know, why not take the business while it's open in that sense?

29:42Piers Curran: Well, hang on. The US economy has the same concentration risk, by the way. but yeah but in that sense then so that means that let's say the air infrastructure build out continues yeah and if anything if interest rates are not rising that's it well then that alleviates the tension that was brewing for sure and on all of these nations and compounded by a lot of the political unrest that we had been seeing in europe and france and these yields if some of the steam just starts to come out of that and reverberates across the globe out of the US in terms of rate expectations, well then if that's now taken off, I mean, I think we're still priced heavily for the deck hike.

30:30But that aside, then is this just almost the best outcome that the market could have hoped for to just continue to gradually grind away in the pattern that we've had?

30:43Piers Curran: It's like that perfect Goldilocks I'm just looking like so let me let me repeat here this is my overall view rates yields are down and I think that has now it's taken a while because we had big moves and now we've seen reversals all over the place that yield complex going down has become the biggest force here and it's meant it's born out of the fact Washington aren't going to borrow as much because we've got gridlock. Borrowing costs, therefore, across the whole spectrum drop, which hopefully maybe means that the hyperscalers can carry on spending and the AI thing can continue. But I'm looking at one chart now, and I just wish sums it all up in my view.

31:31Piers Curran: Bitcoin right now is spiking through the roof here. it's now up 2.7 % on the session. That it was heavily down earlier. I mentioned, look, Bitcoin, like let's just say crypto broadly, Trump is massively pro-crypto, whereas Biden, and I don't know who comes in on the Democrat side, but they're not, right? So it'd make perfect sense for Bitcoin to sell off. And yet now Bitcoin's through the roof. Why? Because I think this is now actually just turning into a broad-based risk on. This is now just a risk on, across markets because yields have dropped. And that was one of the big, big drags and concerns that kind of the broad-based investment community had.

32:19Yeah, I mean, on the premise of equities, I think I'm right in that historically, the equity market or risk appetite is one of the best that you see in a post-midterm scenario because of the clarity. And if anything, the risk was gridlock in a sense of a much closer contested race. But the fact that this is so clean in its outcome gives all the more reason for confidence.

32:47Piers Curran: That's right. One risk was, given Trump's history, if this was a tight, you know, Democrats just about got a majority in the House and the Senate by a whisker. You know what Trump's like. He'll call foul. he'll say I don't believe that he will kind of discredit the result but this has been a large enough swing that Trump's like actually fair you know I am prepared to work with the opposition I think was actually one of his lines earlier on once he's kind of conceded this has been a bit of a disaster so it's a very clear-cut win for the Democrats which makes the Washington gridlock guaranteed and for sure.

33:27Piers Curran: And there was a stat I was looking at. I think I'm right in saying the S &P 500 has gone up in the six months following the midterm election every, every, every time since the Second World War for like a 70 year stretch. The six months after midterms, the S &P goes up. It's like one of the most guaranteed market scenarios you can actually think. And you're seeing that in a kind of microcosm here today. I'm looking at Amazon's up 7 % now. I mean, it got whacked last week because they're spending too much and their cash flows, their real cash flows are coming down as a result. This is yields have dropped making this AI build-out cheaper.

34:17Long live the hyperscalers. Right. All right. Cool. Well, look. good to grab you for for 30 minutes just to get your hot take on this please do drop us a comment let us know your thoughts and if you've made it to the end of the show much appreciated please do share the show with a friend that's the easiest way to to get it out there and hopefully get more people tuned in every week for new episodes so thanks as always Piers thanks a lot