Are you getting whiplash following the market’s reaction to the US midterm elections? I sure am. To recap, the initial response was bullish overall. A clear, uncontested electoral result put an end to uncertainty. Treasury yields fell, as did oil prices. Gains in equity sectors like consumer cyclicals and healthcare offset losses in artificial intelligence stocks, which dropped on fears the Democrats would slow data center construction.

Those fears turned into panic on Nov. 5, when the Morningstar US Total Market Index lost 4.34%, its biggest one-day decline since the April 2025 “Liberation Day” selloff when President Donald Trump announced his tariffs. Nov. 5 losses were especially acute on the growth side of the stock market. AI players like Nvidia NVDA, Broadcom AVGO, and AMD AMD led the large-growth corner of the market down furthest.

While markets have rebounded, it’s too early to discern a trend. Historically, election-year Novembers have been good for stocks, but there are exceptions like 1994, which was less about electoral results and more about spiking interest rates. Have the 2026 midterms catalyzed the popping of an AI bubble? Will markets settle down? Only time will tell. I’ll just point out that markets have a poor track record of divining elections’ investment implications. Ultimately, the impact of politics on asset prices is overrated.

Recall the “Trump trades”

Before the “Blue Tsunami” of 2026, there was the “Red Sweep” of 2024. Donald Trump pulled a Grover Cleveland, winning a second, nonconsecutive term as president, while Republicans captured both houses of Congress. Similar to the recent midterms, the 2024 election results weren’t unexpected, but markets were surprised by their magnitude.

US stocks rallied after the 2024 election. The reaction was attributed to hopes of tax cuts and deregulation. Small caps, seen as beneficiaries of protectionism, got a big boost. European shares sank. So did bonds, selling off on inflation fears. Bitcoin gained 10% on election night.

Markets weren’t completely off about Trump, but many of those initial trades reversed after he took office. Most spectacularly, April 2025 brought a sharp equity market selloff when the full scope and scale of Trump’s tariff program was unveiled. European markets ended up having an outstanding year in 2025. They were partly catalyzed by Trump-induced defense spending. Meanwhile, US small caps underperformed, and bonds recovered.

The investment story of the Trump presidency is still being written. Overall, equity market returns have been strong. While tax cuts and a supportive regulatory environment haven’t hurt, corporate spending on AI has been the key catalyst for gains. Treasury yields have spiked in 2026, so the market’s initial fears of fiscal profligacy and inflation were justified. Bitcoin has given up most of its postelection gains.

Oil and gas stocks thrived under Biden

During the presidency of Joe Biden, the best-performing of the 11 sectors of the US stock market was energy. I don’t mean renewable energy businesses focused on wind and solar—I’m talking ExxonMobil XOM, Chevron CVX, and ConocoPhillips COP. From January 2021 through December 2024, the Morningstar US Energy Index more than tripled the return of the broad US equity market, which didn’t do so badly itself in that span.

How could this be? How could fossil fuel businesses flourish to this extent under an environmentally minded administration? What about the 2022 Inflation Reduction Act, which devoted hundreds of billions to clean energy, electric vehicles, and carbon reduction? What about the Biden EPA’s efforts on vehicle emissions standards?

Recall that the onset of the pandemic in 2020 led to an oil price collapse. Biden’s early days saw a “reopening trade,” with energy demand rising and supply tight. Then came Russia’s invasion of Ukraine in early 2022. Brent crude crossed $120 per barrel, and oil companies like ExxonMobil booked record profits.

There were other forces at work, as my colleague John Rekenthaler explained. Efforts to constrict oil supply can actually benefit energy companies in the short term. Plus, Biden’s actions didn’t always match his rhetoric when it came to fossil fuels.

Remember the original “Trump bump”?

November 2016 was one of the best ever election months for stocks. Trump’s surprise victory over Hillary Rodham Clinton set off a furious rally. Similar to the 2024 story, small caps rose further than large caps. Dirty, old-economy sectors, seen as beneficiaries of infrastructure spending, stimulus, and protectionism, benefited most. Technology stocks lagged in the immediate aftermath of the election of a candidate perceived to be hostile to Silicon Valley. Here’s how the Morningstar Style Box looked in November 2016:

Fast forward to the end of Trump’s presidency in 2020, and performance dynamics looked totally different. Tech ended up the best-performing sector under Trump’s first term. How? Market forces took charge. Mobile computing, the cloud, and e-commerce captivated investors even before the onset of a pandemic that amplified tech sector leadership. So, in a similar story to energy under Biden, Trump 1 produced counterintuitive equity sector dynamics.

The lesson: Don’t overestimate politics

Could Democratic control over Congress and many states slow the progress of AI? Sure. But there are many possible paths ahead. In one scenario, an AI spending slowdown prompts interest rate cuts, with bullish ramifications. Or, the same way that market feedback has altered the course of Trump’s policymaking (see: the “TACO Trade”), a similar dynamic could play out with the Democrats.

At the end of the day, politicians get too much credit and too much blame for both the economy and investment markets. Bill Clinton’s leadership didn’t prompt the 1990s stock market rally, nor can blame for the bear market of 2000-02 or the crash of 2008 be laid at the feet of George W. Bush. Policy and regulation are factors, yes. But they struggle to keep up with private sector forces. When it comes to markets, fundamental factors like earnings and valuations are paramount.

I’ll conclude by quoting something I wrote before the 2024 election:

“The interplay of politics with other variables is complex. Taxing and spending, policy, and regulation matter. But the prices of stocks, bonds, currencies, and commodities move for all sorts of reasons.”