Speaker 1Happy Tuesday out there, Team 42. It's your skipper here, Darius Dell, to present our Macro Minute for Tuesday, November 3rd, 2026. Big day out there today, U.S. midterm elections. We've got a lot to cover, so let's dive right in. As always, we'll start with the executive summary from today's layoff morning note. So, what did we learn today that will likely have the greatest impact on your portfolio is historically robust turnout and spending ahead of the U.S. midterm elections supported the durability and severity of the current risk-off inflation market regime. Specifically, this midterm is the costliest U.S. election ever, topping 2024's presidential contest. Ad Impact projects 2026 ad outlays above $12 billion, led by Senate contests in Texas, Ohio, Michigan, and California. Early ballots exceed $57 million, a midterm high. Heading into today's physical elections, Democrats hold an 11-point national turnout edge. The risk of a surprising politically-induced slowdown in data center construction is high. What key macro data or policy signals supported our active themes or consensus expectations? The October ISM Manufacturing PMI Report supported the consensus forecast affirming growth. The October ISM Manufacturing PMI Report supported our resilient U.S. economy, paradigm C, aka run it hot, jobless recovery, and staking inflation themes. And finally, what key macro data or policy signals challenged our active themes or consensus expectations? The October ISM Manufacturing PMI Report challenged the consensus forecast affirming inflation. The September private sector job opening data challenged our jobless recovery theme. What other key macro data or policy signals did we analyze in today's enough morning note? So number one, more on the midterms. While the historic intensity of spending and historic early voter turnout may not be a signal of victory for either party, it is a signal that voters and donors in both parties are unusually motivated to win. This is a classic symptom of the elite overproduction phenomenon that Dr. Peter Turchin and his colleagues at the Complexity Science Hub used to describe the socially destabilizing fight for power in the United States. The October ISM Manufacturing PMI Report challenged our jobless recovery themes. The September ISM Manufacturing PMI Report challenged the socially destabilizing fight for power among elites chasing too few positions of power and or socioeconomic status. The risk is that disenfranchised elites increasingly turn to populism as a remedy for failing to achieve via traditional means. It remains our view that the 2030s are highly likely to feature significant redistributive policies such as wealth taxes and trust busting. The 2028 general election cycle looms large in this regard. Number two, Apple, Palantir, and Shopify results build on what we discussed in Saturday's Around the Horn webcasts, specifically how expectations are the root of all heartache. We may have entered the part of the market cycle whereby great companies deliver great results on an absolute basis, but see their stock prices punished for failing to appease lofty consensus expectations. And finally, number three, big tech is back in the U.S. bond market after a nearly three-month pause that followed a debt surge in the hundreds of billions of dollars. U.S. tech sector investor grade option adjusted spreads wide to 108 basis points on Friday versus 76 basis points at the end of 2025. Rising risk premiums are a natural byproduct of the U.S. bond market. The U.S. bond market is a natural byproduct of the jump condition in the demand for capital. To this point, Morgan Stanley CEO Ted Pick recently signaled $10 to $15 trillion of AI CapEx and warned of a potential crowding out of the non-AI needs of great companies. And one final thing on that, I was in the Green Room in Bloomberg Friday morning, and the head of credit at a very large major Wall Street institution basically said everything that I've been saying in these webcasts and in our published research, but I kept picking his brain and obviously, I couldn't get him to be bearish. You're not allowed to be bearish in that seat. But he did say something that I don't think he meant to say, which is they're expecting about a trillion dollars of incremental debt coming down the pike over the next one to two years to fund this AI CapEx. I think we're thus far, we're about $450, $500 billion on a year-to-date basis, maybe a little bit less than that on a year-to-date basis. We're talking about a trillion dollars over the next one to two years of incremental debt to fund this AI CapEx. So we're still early innings in terms of the amount of supply we're going to see from an equity and debt perspective. And that's something that could continue to weigh on markets as well in the context of widening credit spreads, lower equity valuations, which obviously just means the higher the cost of capital is being raised because it is, in fact, a buyer's market. So as always, to wrap up with a question from our community, this was tied, good to have cash, not quite a question, but it's just something I wanted to end on because it's really thoughtful. It says, tipping points, good or not, or not, glad to be in cash. It does feel like retail might bolt, creating that downward acceleration Didi was talking about towards a December 2018-like outcome. I was always pretty good at getting out early in my investment career. I'm here for when to get back in too. So much just waiting, so much better just waiting for the signal versus trying to catch the falling knife. And so love this commentary. Two things I'll say on this. Do not be out there catching falling knives. I mean, you can make money catching falling knives, but the probability suggests that if you try to do this to catch falling knives over a long enough period of time, you're going to destroy your financial well-being. You're going to destroy your life savings. You're going to destroy your firm if you're an investment professional. That is the history of investors who catch falling knives. And one final thing I'll make on this comment is the same systems that we use to de-gross, help our buy-side clients tighten their nets, help them to lower their betas, go up in quality, up in size, the types of things you need to do to protect and preserve capital in a risk-off market regime, are the exact same signals that'll tell them, hey, it's a risk-on market regime. You need to be going higher in beta, out in cyclicality, lower in quality, lower in size, increase your gross exposure, increase your turns of leverage, widen your net exposures, the same exact systems. And so they're obviously not perfect systems, but they're obviously incredibly powerful. Generally speaking, keep our clients on the right side of market risk across market cycles. And that's something I'm super proud of. And so thank you for this commentary here from one of our members. So we're going to end here. We'll wrap it up there. Derry Stowe here presenting our Macro Minute for Tuesday, November 3rd, 2026. Best of luck out there today. We'll catch you back here tomorrow.
Speaker 2Cheers. If you enjoyed this content, please remember to like and subscribe. Thank you. This content is for informational purposes only and does not constitute an offer or a solicitation. Reliance upon the information in this material is at the sole discretion of the viewer or listener. Investing involves risks. Any reference to a company, issuer, or investment strategy is for instructive purposes only and does not constitute investment advice. For full disclosures, visit 42macro.com backslash disclaimer.
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