November 3rd: The UNTHINKABLE is About to Happen to Stocks.

[00:00:00] Speaker 1: For nearly two years, Donald Trump has had total control in Washington. He occupied the White House and his Republican Party controlled both chambers of Congress, the House of Representatives and the Senate. And this total domination has enabled him to pursue one of his core goals as the leader of the U.S. economy, a strong stock market. Since his inauguration in 2025, the U.S. stock market has risen by over 30%. But now all of that could change overnight, because on November 3rd, Americans vote in the midterm elections. And the outcome of this election is likely to completely reshape the political forces that have been driving the U.S. stock market. You see, over the last two years, every time that Trump wanted to implement a new spending bill or a tax proposal, they would immediately pass. His picks for top government jobs could be approved. There was nobody in Congress with the power to tie his hands. And this enabled Trump to aggressively pursue his agenda. But now what happens when a president who has made the stock market a central measure of his success suddenly loses the political power to influence it? Well, history suggests the answer to this is actually very clear. And we think we're about to see it play out once again. Because from just looking at the stock market, you would expect Trump's party to be in a strong position. But the odds actually seem to be stacked against him in this election. According to the New York Times poll, Trump's approval rating has fallen from 55% to 32% since Trump took office, which is a lower approval rating than any other American president going back all the way to 1946. And there is a reason for this. American voters are unhappy with a growing list of issues. Obviously, Trump's tariffs and the war with Iran are under scrutiny. But many people are also concerned about health care and jobs. But what's hurting the most in this list is inflation and the cost of living. Prices are rising, gas is more expensive, and so is housing. All of this is hurting the average American. And you can clearly see this in how people feel about the U.S. economy. U.S. consumer sentiment has fallen to one of the most depressed levels since the great financial crisis. This is a survey done by the University of Michigan that has been measuring how people feel about the future of the economy going back to the 1960s. And all of the moments where consumer sentiment were at similar levels to today were associated with economic recessions in the U.S. In other words, the economy is already under pressure today, just before the midterm elections. If Republicans lose even one chamber of Congress, the free hand that Trump has had for the last two years ends. And with the stock market near all-time highs, the consumer under this much pressure, there's not much room for error. And that makes this election arguably the biggest test the stock market has faced since Trump took office. And we actually think this could be setting up for one of the biggest opportunities for investors to take advantage of that we've seen in decades. There's essentially three scenarios that could play out from here, and each outcome could lead to a very different path for the U.S. economy and so the U.S. stock market. So working out which one of these is the most likely is the first step to figuring out what this all means for the stock market. The first scenario is a red wall or a Republican sweep where Republicans keep both chambers of Congress. This is obviously the smoothest road for Trump with the fewest obstacle in front of his agenda. The second scenario is a split Congress where Democrats win the House but fall short in the Senate. Here, Trump would lose some of his power but keep the rest. Trump would essentially keep his power to select judges, senior officials, Federal Reserve governors, and any economic policies that are already in motion like tariffs and deregulation would keep running through executive orders and federal agencies without any new vote. But anything new like tax cuts or large spending packages would struggle to pass the House. The third scenario is a blue wave or a Democratic sweep where Democrats win both the House and the Senate. That would be the biggest shift in Washington. Trump would lose control of Congress entirely and his legislative agenda would effectively be dead for the rest of his term. This scenario would dramatically change the very foundation the stock market has been built on. So which one of these three scenarios is the most likely? Well, if we look at prediction markets, which accurately predicted the 2024 election, they see the chance of scenario one happening, a Republican sweep, at just 7%. The odds of scenario two, a split Congress, are 27% with Democrats winning the House and Republicans winning the Senate. But the probability of scenario three, a Democratic sweep, has more than tripled in the last year, rising to 66%. So the people with money on the line betting on these outcomes see a Democratic sweep as the most likely outcome. And based on our research, this seems pretty reasonable. We can, for example, look at early voting patterns, which has now become a huge part of how Americans vote. This chart shows us how big the share of early voting has grown over the decades. In the 1970s, the number of early votes stood at 5%. And in the last midterm elections in 2022, 47% of all voters used some form of early voting. In other words, nearly half of all votes are now cast before election day. So early voting can give us a real-time preview of the results. Now, not every state offers early voting. So this is not a perfect picture of the country, but it can give us a pretty good idea. Over the last few weeks, 30 million people have already voted. And out of this, 47% are favoring Democrats, 35% Republicans, and 18% make up the others. So based on this early voting data, we do think that a Democratic sweep looks like the most likely outcome. And as we discussed earlier, this scenario three would be the biggest shock to the system and change the very foundation the stock market has been built on. Now, there are two main ways in which this outcome could impact the U.S. stock market. The first is deficit spending. Many argue that the announcement of big spending bills and big tax cuts during Donald Trump's first two years have been a major fuel behind the stock market rally. So if a Democratic sweep would block any new tax cuts and any larger spending packages, the idea is that it could take away one of the biggest supports under this rally. But we don't think that's the right way to think about this. Over the past 100 years, the government has run a deficit far more often than a surplus. And it has not mattered much who was in the White House or who was running Congress. Democrats and Republicans have different economic priorities, but there is no real argument that either party is one of fiscal discipline. Today, the deficit stands at $1.7 trillion, which is the highest level since the 1920s outside of the pandemic. And official projections from the Congressional Budget Office show it reaching $1.8 trillion by 2027 and $1.9 trillion in 2028. Even a Democratic sweep would probably not change that because most of what the government spends like Social Security, Medicare and interest on the debt runs on autopilot no matter which party is in charge. So although we don't think this first factor will be changed by the midterm elections, most of it will come down to the second thing that we'll look at in just a second. The deficit is still very important to consider here because all of this deficit spending is likely to continue to lead to more currency debasement, which is when a currency loses value because more of it is created. One way to see this is by inverting the deficit chart and putting something called the debasement pressure index on top. This index essentially tracks how fast new money is being created and so how much pressure there is on the US dollar to lose value on a scale of 0 to 100. The higher it goes, the more debasement is occurring for the US dollar with a 70 to 100 region indicating very high debasement. Here we can clearly see that the debasement pressure index has a very close relationship with government deficit. For instance, the index spiked to around 90 in 2009 and rose to 80 in 2020, the very years where the deficit rose significantly. Today the index sits at 70, right at the edge of the very high zone. With deficit projected to widen even further, we think debasement pressure is likely to keep building from here. And we'll get to why that's so important for the stock market in just a second. But the point is, even if Democrats win, deficits will stay high and so will the debasement pressure, which is why we think the impact of these midterm elections on the stock market will be 100% determined by this second factor. Before we look at what this factor is, I want to quickly remind you that this is the very last chance to take advantage of the midterm election offer that we're doing on our strategy. You get full access to the complete package with everything you need to navigate today's market, full access to our strategy, all of our signals to enter and exit the market, and all of our research for pennies on the dollar. The day after the midterm elections pass, we'll be removing the link below that gives access to this special offer. So we're really in the final countdown before this offer expires. So if you want to start trading the market with us, you can find out everything about the offer by clicking on the link below. Now, the second factor that we are paying attention to is actually something that very few are talking about right now. And that is uncertainty. More specifically, economic policy uncertainty. This is actually one of the biggest forces that drives the stock market over time. And this is going to be especially relevant in the aftermath of these midterm elections. You see, spikes in uncertainty have driven some of the largest market corrections in history, like the 2008 financial crisis and the dot-com bust. Not to mention the pandemic, where uncertainty reached record levels as the stock market declined by 35%. On the flip side, when uncertainty comes down, it can also be an extremely powerful force to drive the stock market in the very opposite way. Cooldowns and uncertainty throughout history have coincided with some of the biggest rallies we've seen in the last 40 years of data. The logic here is quite straightforward. When economic policy becomes uncertain for reason X, Y, or Z, investors are less likely to make big risky bets with their capital and more likely to seek safety. And when it comes to financial markets, the stock market is seen to be generally more risky than assets like cash, bonds, or gold. So naturally, as uncertainty rises, investors allocate less capital to stocks and more to these safer assets. And the opposite happens when uncertainty comes back down. Capital is essentially unlocked from safety and floods back into the stock market. Now, you might be wondering, how is all of this relevant to the midterm elections? Well, today, economic policy uncertainty has already been continuously hovering at extremely elevated levels. These are levels of economic policy uncertainty that we've never seen over the last 30 years outside of the pandemic. This spike in uncertainty really began when Trump was elected as president of the United States in November of 2024, and it took off in early 2025 as he started the trade war. But since then, uncertainty has remained elevated as the Trump administration has, for better or for worse, made radical shifts in trade policy, foreign policy, and US treasury policy. So what we conclude here is that the stock market over the last few years has not necessarily been rising as a result of the Trump administration. It has actually been rising in spite of the high levels of economic policy uncertainty that we've had over the last few years. And we have the data to back this up. When Trump took office in January of 2025, the price-to-earnings ratio of the S&P 500 index was at 22. The price-to-earnings ratio is essentially a measure of how much investors are willing to pay to be an owner of the stock market. Now, today, the price-to-earnings ratio sits at roughly 18. That is around a 20% discount relative to where valuation stood when Trump took office. This essentially reflects a decline in the premium that investors are willing to pay for the stock market as a result of these higher levels of uncertainty. A great way to picture this is that since Trump took office, stock market earnings have jumped by roughly 50%, but the S&P 500 index has only jumped by 30% because of the higher levels of uncertainty. The reason the stock market has actually climbed is simply because the earnings of the stock market have been melting up over the last few years, thanks to the AI boom that started in 2022, but also as a result of the monetary debasement from the high levels of deficit spending that we mentioned earlier. And if we are right about the outcome of this election, this could have absolutely massive implications for the U.S. stock market. You see, if a Democratic sweep ends up actually taking place and Democrats win both the House and the Senate, it would essentially put the U.S. government in what's known as a policy gridlock. Because if the Democrats are in charge of both chambers with, let's say, 51 or 52 seats in the Senate, which seems like the most likely outcome, there is something called the filibuster rule that requires 60 votes for most bills to even reach a final vote. This means that many bills will essentially die in the Senate unless the Democrats can convince enough Republicans to also vote for them. And even if a bill does pass through the Senate and it finally lands on the president's desk, well, Trump has the power to veto it, something that he has already mentioned he would do. This will essentially mean that the Democratic Party and the Republican Party will no longer be able to aggressively push a political agenda. And this is not the first time that we would be seeing something like this. This actually happens to a certain extent in pretty much every single midterm election going back 80 years. Whoever is the opposition tends to gain political power during the midterm elections, and so creating this kind of policy gridlock. And this historically has major consequences for the US stock market. We can mark every one of the 20 midterm elections going back to 1946, and we can see a very clear playbook emerge. The S&P 500 tends to be quite volatile heading into the midterm elections as uncertainty around elections naturally rises. This can even still be the case shortly after the midterm elections, but these pullbacks have systematically proved to be buying opportunities. After every single one of these midterm elections, the market rose in the following six to 12 months with an average gain of around 14%. The reason this happens is because when there is this kind of policy gridlock, it means investors no longer need to be worried about any radical shifts in government policy. And so uncertainty comes down and investors can reallocate more aggressively back to the stock market. And we think this is going to happen today, but on steroids. Because if we're right, and a democratic sweep makes economic policy uncertainty come down from these very high levels, history shows that this can be a tremendous positive tailwind for the stock market. A very reasonable scenario here would be to see, for example, the S&P 500 index get back to a price to earnings ratio of 22 like it had before Trump took office when uncertainty was a low. This would immediately translate into a 20% rise in the stock market just from lower levels of uncertainty. And that would be without even taking into account ongoing currency debasement from deficit spending that will be continuing to lift stock market earnings higher. So although right now, we are still in cash to sidestep the volatility that we're seeing heading into these elections, and there could still be some near term volatility in the stock market, as we think investors are also anxious to see what Donald Trump's reaction to a loss might be, as some of his supporters have even called for Trump to declare martial law. But the more likely outcome is that any short term volatility in the market quickly turns into a massive rally on the S&P 500 index heading into the end of the year. This is something we obviously intend on taking advantage of step by step with our clients, providing the strategy the entire way through and highlighting precisely the moments where we'll be entering the market to take advantage of the next leg up. If you want to profit from this setup with us, make sure you do not miss the midterm election offer that we've been running to give you full access to our top performing strategy and all of our research at a much more attractive price. This is literally the last day before elections, and so it's the last day to take advantage of this deal. After that, the link below will expire and the offer will not be available ever again. So click the link below to see the offer and secure your spot. Thank you for watching.