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*                       FIEND'S SUPERBEAR MARKET REPORT                     *

*                                November 4, 2026                           *

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*                       e-mail: fiendbear@fiendbear.com                     *

*                    web address: http://www.fiendbear.com                  *

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Fiend Commentary
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Gridlock—or the Grand Bargain?

The blue wave arrived Tuesday, and it was considerably larger than Republicans had feared.

Democrats captured both the House and Senate, flipping seats in states that had been reliably Republican for years. The election leaves President Trump facing an opposition-controlled Congress for the final two years of his administration.

The result wasn't entirely unexpected. Democrats had been heavily favored to win the House, and their chances of taking the Senate had improved substantially in recent weeks. But the breadth of the Republican defeat was remarkable.

Wall Street initially reacted nervously, with Nasdaq futures falling more than 2% overnight before recovering. By Wednesday morning, futures had moved back toward positive territory as investors began embracing the familiar prospect of divided government.

The metals enjoyed an even stronger recovery. Gold surged back above $4,000, silver climbed toward $52, and the dollar weakened as Treasury yields declined.

Investors appear to be betting that a Democratic Congress will restrain the administration's spending ambitions and prevent major new legislation.

That may be correct.

But there is another possibility receiving considerably less attention.

What happens if the two parties actually decide to cooperate?

The Affordability Election

Republicans suffered Tuesday's defeat for several reasons, but the cost of living was clearly among the most important.

Inflation has remained stubbornly elevated throughout 2026. Gasoline prices never delivered the normal summer relief consumers expected. Diesel has become extraordinarily expensive, and the effects continue moving through transportation, food and other consumer prices.

Add high rents, insurance premiums and mortgage rates, and the dissatisfaction becomes understandable.

The administration can correctly point to the Middle East conflict as a major contributor to energy costs. It can also argue that many of today's affordability problems originated years earlier.

Voters are rarely interested in sorting through the historical causes of their gasoline bills.

They tend to hold whoever is currently running Washington responsible.

The same pattern has punished both political parties repeatedly.

Tuesday was simply the latest example.

Republicans who survived the election will certainly be aware of the message. Another two years of expensive energy and declining purchasing power would make 2028 considerably more difficult.

Democrats have their own incentive to demonstrate that gaining control of Congress produces something tangible for voters.

That creates the possibility of cooperation where the usual partisan calculations might suggest otherwise.

Trump Is Not a Conventional Republican

One factor investors should remember is that Trump has never been particularly committed to traditional Republican fiscal conservatism.

His political instincts are frequently more populist and transactional than ideological.

He has supported tariffs, industrial subsidies, direct payments and other policies that would have been uncomfortable for many earlier Republican administrations.

He has also floated the possibility of substantial checks for American households.

A Democratic Congress would almost certainly reject large portions of his existing agenda. There will be investigations, political confrontations and disagreements over taxes, regulation and spending.

But suppose Democrats propose a major affordability package.

Expanded tax credits.

Rebates for lower- and middle-income households.

Energy assistance.

Housing incentives.

Perhaps some combination designed to provide immediate relief from high living costs.

Would Trump automatically reject such legislation if it were sufficiently popular and he could claim part of the credit?

Not necessarily.

And after Tuesday's losses, some surviving Republicans might be considerably more willing to compromise.

There are substantial obstacles, including the Senate filibuster and Trump's veto authority. Neither party can simply impose its preferred legislation.

But those obstacles also create incentives for negotiation.

A divided government can produce gridlock.

It can also produce expensive compromises.

The Bond Market May Be Getting Ahead of Itself

Treasury investors initially welcomed the election results.

The 10-year yield moved toward 4.9% as traders anticipated that Democratic control of Congress would make additional fiscal stimulus more difficult.

That is a reasonable first reaction.

The administration's proposed $5,000 checks, for example, would now face a much more difficult path through Congress.

But the assumption that political gridlock necessarily reduces deficits deserves skepticism.

Existing federal spending commitments don't disappear when Congress changes hands.

Neither do interest expenses on more than $40 trillion of government debt.

And bipartisan legislation is not automatically fiscally responsible.

If both parties agree on a household relief package without corresponding spending cuts or new revenue, the result would be additional borrowing.

Such a program might temporarily help consumer spending and provide political benefits for both sides.

It could also increase demand in an economy already struggling with inflation.

That would leave Treasury investors confronting the same problems that pushed long-term yields to multi-decade highs only a few weeks ago.

The initial bond rally may therefore be justified by the prospect of restraint.

Whether that restraint actually materializes is another question.

The Fed Still Has an Inflation Problem

Tuesday's election also did nothing to resolve Kevin Warsh's dilemma.

September CPI reached 3.7%, producer inflation accelerated to 6.3%, and the Fed has raised rates only 25 basis points this year.

Another increase remains expected in December.

But weaker employment, the correction in technology stocks and the decline in Treasury yields are giving policymakers reasons to proceed cautiously.

Oil has retreated substantially from its October highs, with Brent now trading near $104. That is encouraging, although hardly inexpensive by historical standards.

A lasting settlement in the Middle East could do more to improve the near-term inflation outlook than another quarter-point rate increase.

Renewed hostilities could accomplish the opposite.

Now add the possibility of a bipartisan consumer stimulus package in 2027.

The Fed could find itself trying to restrain inflation while Washington provides additional purchasing power to households.

That would be an uncomfortable combination, particularly if the economy has insufficient capacity to meet the additional demand without raising prices.

It is another reason not to assume that the election has permanently improved the outlook for bonds.

November Still Has Its Own Problems

The overnight market recovery is encouraging, but the election doesn't erase the correction already underway in artificial intelligence.

Technology companies still face questions about enormous capital expenditures, financing requirements and the eventual profitability of their investments.

Democratic control of Congress could introduce additional scrutiny of AI infrastructure, data centers, energy consumption and competition among the largest technology companies.

That may become a more important market issue than the usual gridlock narrative.

Meanwhile, gold and silver are enjoying a welcome rebound after months of punishment. Falling yields and a weaker dollar have finally provided some relief, although one strong overnight move does not establish a lasting bottom.

Friday's employment report will bring attention back to the economy and the Fed.

But Washington has already supplied plenty to think about.

The Democrats won a decisive victory, and Republicans suffered a defeat that will almost certainly influence their political calculations for the next two years.

Wall Street's immediate conclusion is that the election means gridlock, fewer spending initiatives and perhaps a more favorable fiscal outlook.

That may prove correct.

But the politicians who just survived an election dominated by affordability concerns have little incentive to spend the next two years explaining why nothing can be done.

And Trump has never been especially reluctant to embrace a politically attractive deal.

The real surprise of the next Congress might not be endless confrontation.

It might be a bipartisan agreement to provide substantial relief to voters, with both parties claiming victory and Washington borrowing the money.

Wall Street is celebrating the possibility of less spending.

It should keep an eye on what happens if both parties discover they can agree on more.

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