Post-Election Market Outlook: Rising Policy Risk and More Defensive

Investment Positioning

By Victor Sperandeo with the Curmudgeon

Introduction:

Tuesday’s U.S. midterm election results represent a significant setback for President Trump and the Republican Party. Hats off to Richard Baris and Robert Barnes for their spot on predictions, which we referenced in last week's post as "A Republican Disaster in the Making?"

In that article, we also noted that the November 3rd election would be a referendum on the U.S. President and his policies. Indeed, pollster Frank Luntz said former Trump supporters flipped ‘unanimously and were “voting against the Republicans,” rather than embracing Democrats.

We believe the election outcome reflects strong voter dissatisfaction with the GOP, which is increasingly perceived as aligned with special interests, rather than the broader public they were elected to serve.

For financial markets, the central issue is whether the resulting shift in political power will weaken growth expectations, delay fiscal support, and accelerate a move toward more defensive positioning. Victor's outlook is bearish. He believes the economic recovery and equity bull market are approaching a critical turning point.

Fiscal Policy, Federal Reserve Leadership, and Interest Rates:

A more contentious political environment could complicate the passage of economic growth-supportive legislation. Fiscal agreements remain possible, but meaningful spending measures may take another six to eight months to materialize. That delay would leave the economy vulnerable to weakening private-sector demand in the interim.

Victor also expects the Federal Reserve’s messaging to become more cautious as the growth outlook deteriorates. A Senate Banking Committee chaired by Elizabeth Warren will likely subject Fed chairman Kevin Warsh to considerable scrutiny, while a House led by Hakeem Jeffries could increase political pressure for lower interest rates.

Political pressure, however, should not be confused with direct control over monetary policy. Congressional leaders cannot simply dictate the federal funds rate, and any change in the Fed’s policy stance would ultimately depend on the FOMC’s assessment of inflation, employment, and financial conditions.

Victor's investment thesis is that weakening economic conditions—not political preferences alone—will strengthen the case for lower rates.

Equities: A Potential Market Top:

In our view, the fundamental backdrop increasingly supports the case that equities have established a major market top. Victor would maintain the previously recommended short exposure, subject to disciplined position sizing and risk management.

The Nasdaq-100’s position below its 200-day moving average is an important technical warning. A sustained downturn in the slope of that average would further reinforce the bearish trend assessment, although no single indicator provides definitive confirmation.

Using Dow Theory, the key closing levels to monitor are:

· Dow Jones Industrial Average: 50,906.05.

· Dow Jones Transportation Average: 19,382.09.

Those are the September 30, 2026, closing lows referenced in this analysis. Decisive closes below both levels, particularly on expanding volume, would strengthen the case for a confirmed bear-market signal under the Dow Theory framework.

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Curmudgeon Comment (via the Leuthold Group):

The current U.S. equity bull market is now four years and one month old (it turned four on October 12th). At 49 months, this bull is now the longest in the modern era not born in a recession. More importantly, the bull’s price return at its October 6th high is more than double the average return of the other four non - recessionary iterations. This four-year+-old bull is also exceptional when considering the price returns of other indexes from the bull’s trough to its peak: Equal Weighted S&P 500 (+65%), S&P 400 (+ 64%), S&P 600 (+55%).

Note: The Nasdaq 100 (QQQ ETF) index hit an intraday bear market low of 10,440.64 on October 13, 2022. That index reached a record intraday high of 31,361.37 on October 6, 2026. That marked a total return (not including ETF dividends) of 199.42% from its October 2022 bear market low to its peak on October 6, 2026. Source: Google Gemini.

Source: Leuthold Group- November 2, 2026, MTI Report

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Gold and Precious Metal Equities Present Different Investment Cases:

Gold remains appropriate as a long-term investment holding, but it is not immune to liquidation during an economic downturn. Gold futures rose +4.6% last week, the highest level since October 21st. The yellow metal is usually inversely correlated to the U.S. dollar, which was up +0.5% on the week.

Victor's downside scenario allows for a move toward $3,500 as recessionary pressures intensify after December. He remains cautious on precious metal mining equities than on bullion. Even if reported earnings remain strong in absolute terms, a slowdown in earnings growth could pressure valuations during the first quarter. Victor's concern is that investors will increasingly focus on the rate of change in profitability rather than the level of profits alone.

That distinction is central to the positioning: a constructive long-term view on gold does not necessarily imply a bullish outlook for gold mining producers.

Treasuries: Favoring Intermediate Maturities:

We continue to favor buying Treasury bills, notes and bonds (or the equivalent ETFs mutual funds or futures contracts) on pullbacks.

You can buy T-bills, T-notes and T-bonds via the Treasury Direct website. The Curmudgeon bought 2-year Treasury notes at the October 26th auction and will be buying 3-year notes at the November 9th auction.

For additional purchases, we would now consider extending duration toward five-year maturities to gain greater exposure to a potential decline in yields. This positioning rests on the expectation that slower growth and a more accommodative monetary-policy outlook in 2027 will support Treasury prices. Persistent inflation or rising term premiums remain important risks to that thesis.

Artificial Intelligence (AI) and Copper: Reassessing Capital-Spending Expectations:

The AI investment theme may face a more challenging political and economic environment. In January 2027, the Democratic congressional majority could bring greater scrutiny of large technology companies, corporate incentives, and the distribution of benefits from AI-related spending.

The key market question is whether that scrutiny translates into changes in investment plans. Any slowdown, delay, or cancellation of data-center projects would affect not only technology valuations but also demand expectations across the infrastructure supply chain.

Copper is particularly important in this context. Our concern is that demand forecasts based on data-center construction plans as of November 1st may prove too optimistic if those plans are revised. Copper accumulated in anticipation of future construction could then return to the market, adding downward pressure to prices.

Victor views the apparent deterioration in copper’s price trend as a warning about capital-spending expectations, rather than treating projected shortages as a settled investment case.

Has the AI bubble burst?

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Energy and Other Commodities:

Oil and heating oil weakened amid expectations that the election outcome might improve the prospects for an end to the conflict with Iran. My assessment is that those expectations may be premature.

An unresolved conflict, combined with potential inventory-rebuilding demand, supports my continued long position in heating oil, or diesel. The principal risks are a diplomatic breakthrough or a sharper-than-expected decline in demand.

Elsewhere, Victor sees broadly weakening commodity trends. Rice is a notable exception in the market snapshot underlying this commentary, reaching new highs with a cited gain of approximately 42%. The measurement period for that increase should be specified before publication.

Chart of the Week - Weekly Asset-Class Performance — Nov. 2–6, 2026:

Weekly percentage changes. Bar chart from ChatGPT:

Note: The U.S. 10-Year Treasury entry (far right) represents the change in yield in percentage points, not the weekly bond price return. 10-Year Treasury yield declined 8 basis points last week, from 4.94% to 4.86%.

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Evaluating Market Narratives:

Investors should distinguish independent analysis from commentary produced by participants with a direct financial interest in the assets they promote.

That applies to precious-metals dealers, cryptocurrency advocates, commodity producers, and other market participants. Their views may contain useful information, but their incentives warrant scrutiny.

The same analytical discipline should apply to official economic releases: examine methodology, revisions, and corroborating indicators rather than accepting—or rejecting—a data series wholesale.

Europe and the Global Growth Outlook:

Political instability, social tensions, and policy uncertainty across parts of Europe represent additional risks to an already fragile global growth outlook.

Victor believes that disruption in France and other major European economies could weaken business confidence, delay investment, and compound an international slowdown. The investment implications depend on measurable developments in economic activity, credit conditions, fiscal policy, and corporate earnings—not political rhetoric alone.

Taken together, these risks support a defensive allocation: cautious equity exposure, selective Treasury purchases, a clear distinction between bullion and mining shares, and close monitoring of energy markets and industrial demand.

Conclusions:

The central investment question following the election is whether a more contentious policy environment will compound an already weakening growth outlook. Victor's assessment is that the balance of risks have shifted toward slower earnings growth, delayed fiscal support, and greater market volatility. If those pressures intensify, they would reinforce the case for a more defensive portfolio.

Accordingly, our positioning remains cautious on equities, constructive on Treasuries, selective on gold, and attentive to energy supply risks (i.e. U.S.-Iran war). The distinction between long-term investment themes and near-term earnings expectations will become increasingly important, particularly across AI-related infrastructure, industrial metals, and gold-mining shares.

The priority now is discipline: preserve capital, manage short equity exposure carefully, and require confirmation from market prices, earnings trends, and economic data. This bearish outlook is a working investment thesis—not a certainty—and positions should be reassessed if the evidence changes.

Victor's Warning:

As I have repeatedly cautioned, the global outlook remains fragile on all fronts. In my assessment, France faces serious social and political instability, compounded by challenges surrounding immigration, integration, and social cohesion. Similar tensions are evident in Germany, Spain, the United Kingdom, Italy, and other European countries. These pressures risk undermining confidence, discouraging investment, and deepening what I view as an emerging international economic downturn.

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End Quote:

"The secret of freedom lies in educating people, whereas the secret of tyranny is in keeping them ignorant.” Maximilien Robespierre

Meaning: This quote implies that freedom depends on people’s ability to think independently, while tyranny benefits when people lack the knowledge needed to question those in power.

Maximilien Robespierre was a radical democrat and key figure in the French Revolution of 1789. Robespierre briefly presided over the influential Jacobin Club, a political club based in Paris. He also served as president of the National Convention and on the Committee of Public Safety.

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Wishing you good health, success and good luck. Till next time………………………..

The Curmudgeon
ajwdct@gmail.com

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever-changing and arcane world of markets, economies, and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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