US midterm results: what Canadian advisors need to know
Equity markets weakened as results neared but by Wednesday morning, some of the overnight equity losses had partially reversed. Chris Turner, global head of markets at ING, explained why in comments to The Guardian: “The chip exporter-heavy stock markets of Korea and Taiwan were briefly down three to four per cent overnight on news of the blue wave, but have since recouped all those losses.”
Turner attributed the reversal in part to the fact that Democrats do not take office until January and noted that President Trump’s acceptance of the results removed “one wild-card risk” from markets.
Oliver Faizallah, head of fixed income research at Raymond James, offered a measured read for bond investors, telling The Guardian: “The result makes further significant fiscal expansion harder to deliver through Congress, potentially easing some of the pressure around government borrowing and Treasury issuance. That could be supportive for U.S. Treasuries, but it won’t determine the direction of yields on its own. Growth, inflation and the Federal Reserve remain crucial.”
AI and tech exposure: a conversation worth having now
The clearest area of portfolio risk for Canadian clients with U.S. equity exposure is technology – and specifically the AI trade that has driven outsized gains in U.S. large-cap indices. Some investors on Wall Street fear that a Democratic sweep of Congress could lead to more regulation and restrictions on AI development, with the uncertainty weighing on stock markets and the dollar.
Democrats have already signalled plans to scrutinise the sector. Rep. Greg Casar, Democrat of Texas and chair of the Congressional Progressive Caucus, stated that “AI company CEOs should be called to testify under oath.” Texas, projected by commercial real estate firm JLL to overtake Virginia as the world’s largest data centre market by 2030, elected a governor who has committed to regulating the AI data centre industry – a development with direct implications for utilities stocks and data centre REITs held in Canadian client portfolios.
