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Hello, Reader.
Tomorrow, 36 states will elect governors, 46 states will vote on legislative seats, and thousands of local offices will be up for grabs.
The forecasts call for the Democrats to take control of the House, and I believe the market has already priced this in.
A change in Senate control, however, could catch the market off guard.
If Democrats gain control of both chambers, stocks could sell off in the near term as investors react to the unexpected shift.
We saw how quickly political surprises can rattle markets from Brazil last week, when Brazilian President Luiz Inácio Lula da Silva won re-election against expected-winner Flávio Bolsonaro. Brazil’s benchmark stock index plunged 13.9% the following day, its biggest one-day drop since March 2020.
Brazil is a reminder that markets can get caught leaning too heavily in one political direction. And U.S. investors may be similarly positioned for a particular midterm outcome. If the election delivers a surprise, the market could take a hit as investors scramble to unwind their bets.
Now, I was surprised by the Brazilian results, and I could easily be surprised by the U.S. results. But there is a difference: Brazil’s market reaction was tied not just to an unexpected election result, but specific concerns about government spending and mounting debt. A Democratic takeover of Congress doesn’t automatically create the same concerns for the U.S. economy.
If there is a Democratic sweep, though, we may see a near-term sell-off because that’s the typical reaction in U.S. politics. That said, over at least the last two years of the Trump administration – and even farther back – politics has not been a major driver of stock market trends or even short-term moves.
In this market environment, AI and broader economic forces matter more.
What has had a greater longer-term impact on the market has been the AI trade, AI investment spending, and AI developments. We’ve also seen dramatic revenue growth from companies like Anthropic and OpenAI, as well as the high-profile IPO of Space Exploration Technologies Corp. (SPCX).
This week, several major technology companies will report earnings – and that could drive the broader market direction more than the midterm results. Investors will be watching Apple Inc. (AAPL) for services growth and progress on its AI strategy… Advanced Micro Devices (AMD) for AI chip demand and data-center growth… and Palantir Technologies Inc. (PLTR) for evidence that demand for AI software is driving commercial growth.
The latest jobs report will also be released on Friday, and it will be particularly important to investors following the Federal Reserve’s decision to leave rates unchanged at its last Federal Open Market Committee (FOMC) meeting. Economists expect approximately 65,000 new jobs, following September’s disappointing gain of 29,000. A weaker report could raise concerns about the economy’s health, while stronger employment could give the Fed more reason to keep interest rates higher for longer.
And, of course, the war involving Iran remains an important variable. Disruptions to shipping through the Strait of Hormuz have pushed oil prices higher, adding to inflationary pressures and raising costs for businesses that depend on fuel and transportation.
I expect these real-world trends to be much more influential over stock prices than politics.
So, even if the midterms trigger a temporary pullback, the forces that will ultimately determine where stocks go are much bigger than the political makeup of Congress.
The bottom line is two-fold: Don’t make portfolio decisions based on predictions about the U.S. midterms. And don’t mistake political volatility for a change in the market’s fundamentals.
Instead, prepare for a potential short-term sell-off without losing sight of the forces actually driving the market. That means keeping your focus on the bigger investment trends.
We explored several of those trends in Smart Money this past week. Let’s revisit those stories below and look at where they may be creating opportunities…
Smart Money Roundup
October 28, 2026
What to Buy When AI Computing Gets Cheaper
Cheaper AI could spell trouble for today’s biggest AI stocks. Tom Yeung explains why the falling cost of AI computing could threaten today’s biggest AI investments – and what history’s $9 calculator can teach us about finding winners in the AI trade.
October 29, 2026
Why I Sold This Copper Stock for a 430% Gain
A company can be well-run and benefit from AI’s powerful trend, but that doesn’t make it a good buy. That brings us to a surprising case study: a company whose stock has soared this year, thanks in part to the AI boom.
In this article we examine this company and explore why strong growth doesn’t always make a stock worth buying. Then, I share where I see better opportunities instead.
October 31, 2026
Before Celebrating the Mag 7, Remember Yesterday’s Tech Giants
While demand for AI is clearly real, there remains an important question: Which companies will remain standing once excitement – and investment – fades? History shows that building a world-changing technology doesn’t guarantee lasting success for the businesses behind it. We look at the Mag 7 companies latest quarterly earnings and what they reveal about investing in AI today.
November 1, 2026
What Your Next Takeout Order Could Teach You About AI Investing
A late food delivery is an everyday frustration. For my InvestorPlace colleague Luke Lango, DoorDash’s new drone delivery system points to a much larger investment opportunity. He explains what faster deliveries, better batteries, and American factories have in common… and how that connects to the larger investment shift he explores in his latest briefing.
Look Beyond the Midterm Noise
Washington may set the mood on Tuesday, but Wall Street has plenty of other things to worry about. And that’s where I’m keeping my attention: on the companies, technologies, and economic forces reshaping the market – not the political headlines.
Remember, if the midterms do spook the market, don’t automatically head for the exits. In fact, a pullback can create opportunities for those willing to look beyond the headlines.
Look for solid businesses swept up in the selling, especially overlooked companies growing sales, expanding profits, and trading at prices that don’t reflect their potential.
More specifically, I recommend shifting some attention away from the companies spending billions to build AI infrastructure and toward the companies putting that infrastructure to work.
These companies – which I call AI Appliers – have the potential to use cheaper, more powerful technology to cut costs and grow profits.
Regards,
Eric Fry
