By James Neals, CFA®
Vice President & Portfolio Manager, Optimize Financial Group
“Are you actually going to wear that? You know Halloween is over.” — James Neals’ wife
Last week, I made the questionable fashion decision to pair a light blue shirt with a slightly lighter blue tie. In my mind, I was looking rather hip and cool. That feeling lasted approximately 30 seconds before my roommate (my wife) offered a rather different assessment. Quite the bully. That said, apparently, the American electorate has now reached a similar conclusion about Washington. After two years of political theatrics, tariff threats, and changing the names of lakes and gulfs, voters seem to have looked at the Republican leadership and asked much the same question: “Are you really sure you want us to pretend you are on the ballot?” The answer, judging by the midterm results, was a fairly decisive no. Democrats have delivered a sweeping victory, fundamentally changing the political landscape and ushering in two years of divided government. Time will tell whether investors are pleased with the change of wardrobe, but we certainly feel confident in the positioning of the Optimize Portfolios for this new regime.
The immediate market reaction was encouraging, with both equities and bonds moving sharply higher, albeit becoming increasingly volatile in the days following. Investors are less excited about what the election introduces than what it removes: uncertainty, political risk, and the prospect of another round of deficit-financed tax cuts. Democratic control of Congress effectively puts further Republican tax cuts on ice and creates a meaningful obstacle to the administration’s legislative agenda. Trump still retains substantial executive authority over trade and foreign policy, but his ability to push through major spending and tax initiatives has been considerably reduced. For bond investors, the prospect of greater fiscal restraint, softer growth expectations, and a potentially less aggressive Federal Reserve creates a constructive backdrop for high-quality government bonds. Even a moderate 50-100bp of yield decline can now translate to roughly 6-13% in government bonds without too much duration risk. Not a bad return for something that doesn’t require a congressional majority.
Beyond Washington, the election is reinforcing a broader shift in market leadership. The increasingly crowded AI trade faces greater scrutiny around regulation, data centre construction, electricity consumption, and the enormous sums being spent on infrastructure. The AI opportunity remains substantial, but investors are becoming considerably more selective about which companies can actually turn that investment into profits and cash flow. Meanwhile, health care looks particularly attractive, supported by demographic demand, resilient employment growth and improving industry fundamentals. More importantly, equity market leadership is broadening beyond the handful of mega-cap technology companies that have dominated returns for years. Financials, industrials, energy, and, as mentioned, health care are increasingly contributing to earnings growth and market performance. This is precisely the kind of environment diversified portfolios like ours should benefit from. We don't need equities to do all the heavy lifting, nor do we need to identify the next AI superstar to generate attractive returns. There are still plenty of risks, including inflation, oil, trade tensions, and the enormous financing requirements of the AI buildout, but the election reinforces several trends already underway.
After years of being told that owning seven technology stocks constituted a diversified investment strategy, the market appears to be discovering that there are, in fact, other companies listed on the exchange. For once, diversification is finally getting invited back to the party. And unlike my light blue shirt and slightly lighter blue tie, I think this look is going to age rather well.
2. Beyond Technology: Which Sectors Could Benefit From the Midterm Elections?
After several challenging years for fixed income investors, bonds are offering a more compelling opportunity. Yields remain attractive, providing meaningful income and potential capital appreciation if rates decline. Recent developments have been supportive, with Treasury yields falling after the midterms, oil prices retreating, and concerns around additional government borrowing easing somewhat.
The economic backdrop is also becoming more favourable. A divided government could limit further deficit-financed spending, while moderating growth and lower energy prices may ease inflationary pressures. The latest Treasury announcement also confirmed unchanged long-term borrowing levels over the coming quarters, offering additional stability. While this doesn't guarantee lower rates, attractive starting yields and a potentially more supportive backdrop make fixed income increasingly appealing.
What we’re watching: Whether inflation continues to moderate, growth cools without deteriorating materially, and the recent improvement in bond markets continues.
Why it matters: Bonds are once again offering attractive income alongside potential capital appreciation if rates decline. They also provide portfolio diversification and downside protection if economic conditions weaken or equities experience renewed volatility.
Sources: Bloomberg (November 9, 2026)
Disclaimer: This report is for informational purposes only and does not constitute investment advice. Please consult with your financial advisor before making any investment decisions.