The market always trades a little differently during midterm election years. This year, a witches’ brew of macro trends is making the market potentially more volatile than even the most severe midterm year: 2018, the second year of the first Trump presidency.
In our livestream broadcasts, Andrew has been tracking averages for this year compared with historical midterm and other seasonal factors.
Fidelity just released new data with a more direct threat to your money this year, the second of Trump’s second term in the Oval Office.
The second year of a presidential term has produced the weakest average stock returns of the four-year cycle. The average drawdown in year two sits at 19.4%.
Fidelity’s research also shows stocks have historically been weaker before the midterms and stronger immediately afterward. Professional money managers do not wait for Election Day. They raise cash, cut positions or buy protection in anticipation of volatility… not by forecasting who’s going to win control of Congress.
The money they’re managing belongs to individual investors either preparing for or already in retirement, like you.
Baby boomers own the lion’s share of assets during the current bull market – houses, businesses, stocks, bonds, retirement accounts and cash accumulated over decades. Their children and grandchildren will inherit much of it.
Cerulli Associates estimates that $124 trillion will change hands through 2048, with nearly $100 trillion coming from baby boomers and older generations and about $105 trillion going to heirs.
Between the owner and the eventual heir stand pension managers, insurance executives, mutual-fund managers, trustees, financial advisers and family offices. Those people decide where trillions of dollars are invested.
This midterm is unique because Jensen Huang and 115 executives of the 58 largest AI companies (57% of the S&P 500 Index), Treasury Secretary Scott Bessent presiding over $40 trillion in national debt, and a slew of uppity politicians advocating higher taxes on large fortunes are all vying for your money next… making the midterms a good target date for those who want to shift the balance of power and the flow of capital in their favor.
Let’s begin with the AI trade. You’d have to have been in a coma to miss that the stock market has made AI companies rich over the past four years. The problem is, they need more.
Nvidia (NVDA) says the frontier labs are growing faster than its balance sheets and credit profiles can support, even while the hyperscalers are spending cash faster than investors are comfortable with.
That is why Nvidia went to Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR on August 10 and asked them to help mobilize more than $500 billion of third-party capital. Nvidia called compute and full-stack AI infrastructure an “investable asset class.”
BlackRock CEO Larry Fink compared the developing market with the teaser rates early in the development of the mortgage-backed securities market at the epicenter of the 2008 financial crisis.
Huang and his minions need the men and women managing pensions, insurance reserves, private credit funds and family fortunes to choose AI infrastructure as they allocate their next dollar.
Next is Scott Bessent’s Houdini act at the Treasury. The Treasury Secretary needs that same army of managers to choose Treasury bonds. His department must refinance federal debt above $40 trillion while continuing to raise new cash for Washington.
A pension manager holding $100 million can lend it to the United States government or commit it to an AI financing vehicle. An insurance executive makes the same comparison with every bond portfolio she manages.
When Bessent has to offer a higher Treasury yield to attract those buyers, Huang’s financing partners have to offer investors enough additional return to compensate them for taking the AI-project risk.
Since the July 31 intervention, Bessent has been engaged in all manner of sophisticated antics to stabilize demand for Treasurys. Most we’ve detailed and put trades on here in the Pro.
Peter Thiel identified a third claim on those family assets years ago.
In January 2020, he emailed Mark Zuckerberg and others about polling showing that 70% of Millennials said they were pro-socialist, and argued that young adults carrying student debt and unable to buy homes could spend years with what he called “negative capital.”
At Aspen in June 2026, Thiel said he expected a “democratic socialist takeover in the Democratic Party.”
Politicians who support higher taxes on estates, investment income and large fortunes are asking Congress to collect a larger share of private wealth through the tax code.
We saw another aspect of political risk firsthand at the Rayburn House Office Building in Washington, D.C., on Wednesday. Family office and hedge-fund managers in the room were openly suspicious of the sudden call from leading AI executives for federal regulation.
Members of Congress filtered through the day-long proceedings, each with their pitch for “why regulation, why now.”
“Why are the leading AI executives who have spent years racing ahead of Washington now asking their representatives in Washington to write the rules for the industry?” The short answer is it’s the midterm.
Dump these constituents in a giant democratic cauldron —Huang asking individual investors for another $500 billion, Bessent asking them to finance $40 trillion-plus of federal debt, and politicians debating how much the government should collect from private fortunes — and you have a witches’ brew of market uncertainty.
If your 401(k), IRA or personal portfolio sits in a broad-market exchange-traded fund (ETF), you decide how much of that uncertainty you are willing to carry.
In today’s Pro, Andrew is making a strong recommendation that you hedge your bet in favor of a sell-off… and be prepared for the rally after.
~ Addison
P.S. Yesterday on Grey Swan Live!, we welcomed back Ronan McMahon of Real Estate Trend Alert for another look at global investing — and the opportunities that exist beyond the dollar.
Ronan specializes in uncovering frontier opportunities in high-end overseas real estate, where investors can potentially find both lifestyle benefits and income.
During the presentation, he broke down the markets where prices can offer significantly more value than what you’ll find in many U.S. markets — and highlighted the types of deals that may appeal to U.S. investors looking to preserve capital while generating income.
But Ronan’s real edge may be his business-development strategy. It’s a fascinating look at how he structures these deals and how that approach can work in an investor’s favor.
It’s worth watching this week’s Grey Swan Live! to hear Ronan explain exactly how it works. (Also, you might catch a glimpse of the brief interlude we took while Ronan put out a fire in his laundry!)
Earlier this week on the Grey Swan Trading Fraternity, we also took a closer look at the Fed’s latest decision and what it could mean for investors. We examined why the economic data pointed toward another rate hike, the difficult dilemma facing policymakers, and what the decision means for our portfolio and broader strategy.
We also revisited Monday’s latest trade — an income-producing strategy designed to potentially generate returns even if the market remains flat or moves sideways. You can watch a full replay of the presentation here.
