Top of the Morning: Election Day takeaways - Markets, policy & positioning

(upbeat music) - Hi everyone, Dan Cassidy here. Welcome back to you top of the morning on the UBS Market Moves podcast channel. For today, we do have a special post-election day episode with our colleagues from UBS, Kurt Reiman and Shane Lieberman. Kurt is the head of fixed income Americas from the UBS Chief Investment Office within UBS FSI. Shane Lieberman is Senior Governmental Affairs Advisor from Governmental Affairs, US. And throughout the course of 2026, Kurt and Shane have joined me here on top of the morning for frequent updates on US midterm coverage, leading up to Election Day. Joining me here this morning, the morning after, for takeaways, reflections on the results known as of this morning and the implications of those results to the policy landscape in Washington, the US macro economic environment, trade policy, foreign policy, and what it all means for your investment portfolio. Although to begin at the start, Kurt Shane, it's great to be with you both on this Wednesday morning, November 4th. Thank you for joining our listeners and our clients here on top of the morning. - Good to be with you, Dan and Shane. - Thank you, it's good to be with you both. - Election Day at this point has come and gone, though there is much to assess the day after in terms of the outcomes, implications to domestic policy and we'll get into that further in a few moments, though perhaps we can begin with the results, congressional, a gubernatorial, a law fair to digest. Shane, what do we know as of this morning and curious as to how the results mapped up to expectations here at UBS leading up to the midterm elections? - While we're waiting for a number of raises to still be called and what we know this morning is that the Democrats have won the majorities in both the House and Senate and pretty basically. In 2006, George W. Bush called something in 2010 when Barack Obama was president and lost in the midterms, he called it a shallacking. So this is a variation of those instances in history, right, and so this adds to that midterm dilemma for the party and power in the White House. There are only two raises still outstanding. Democrats have 54, if they win both, they're up to 56. I mean, I think this was above our citizenship, we're kind of thinking of a Senate high water mark for the Democrats to be 53. So we'll see if there are things that can reach bipartisan consensus. Democrats have about 230 already and there are expectations that they'll win another 20 or so. So they'll have a clear majority, they'll be able to elect Hakeem Jeffrey Speaker without a major issue there. And Hakeem Jeffrey will have some freedom where he may not have to bend to some of the extreme views in his party to get things across the House floor. So it was a very good night for Democrats. - Curt, now that we have an inventory of the results for the most part, a shame pointed out still a couple of Senate races outstanding, though given what we know as of this morning, Curt, what are CIO's views and terms of the implications of these results to a markets, the U.S. macroeconomic environment policy, both near term over the next couple of months and as we look ahead into 2027. Yeah, let me try to break it down into a number of the different policy brackets that this outcome could influence. Let's start with fiscal policy with that limit. Talk a little bit about AI because of the implications that come not just from the federal results, but also as you mentioned, what happened in governorship, which is very consistent as Shane pointed out with what happened at the federal level. And then let's also spend some time on foreign policy 'cause I think that's relevant. So, I guess overall, we just have to keep in mind that when we get a result like this, you've got the presidential veto and you don't have a majority in most cases it's large enough to override it. Even in the case of reconciliation, that's still subject to the veto. There's also a near term, kind of longer term that we also want to think about sort of lame duck. The next last two years of President Trump's time and the White House and then the setup for the presidential election. So there's a lot to cover, but I'll try to be brief. In the case of fiscal policy, I think on balance because of the need for compromise, that there's going to be what I call forcing mechanisms to that will ultimately result in the whatever planned or legislated improvement in the fiscal picture is unlikely to materialize in full and we may even have deficits as large as they are now. The lame duck, there's been some talk about a reconciliation bill that comes through. I don't see how that gets done, Shane may see it differently, but I just don't see how we get a reconciliation bill that deals with spending and the debt limit, especially when you consider that some of the senators that are in office now that were primary out may have very little incentive to come and vote. So that pushes debt limit discussions off until next year together with funding and appropriations. That means that the mix is likely to be more defense and some postponement of the Medicaid and other costs, not all, but some and it's not clear whether it'll be 2027 or 2028 where this all gets sorted out. But I think we are looking for less improvement in the fiscal picture. On AI, one of the things that we were saying was that if you had a big democratic night that this could end up being priced in, briefly stocks could come under pressure, maybe we didn't think it was gonna be as brief as it was, but that's what we saw overnight. There was some read through about what this would mean for the AI Data Center build out when you have had such a monumental shift in the outcome in states like Texas and Georgia and Ohio. I would just be a little bit cautious on translating this into moratoriums. We've been speaking about this for a while. This is not gonna come as news. It's changing the terms under which these get built. Not, and maybe it's slowing slightly on the margin, but the idea that there's a large enough data center at class emerging from the results last night. AI was in the exit polls, but it wasn't number one, two or three of the issues. So, and these are still economic development projects. And they can be done in ways that are more convincing to local voters that maybe wasn't the case for the last couple of years. So the AI build out continues, the terms will change. It might become the pricing may be less favorable to the developers, but we still think it gets done. And then on foreign policy, I think we have to expect a lot of the same from what we saw in the first two years, in the last two years. It's very unlikely that in an outcome like this, that Trump is going to moderate on his opinions, oftentimes presidents in the last two years, anyway, resort to foreign policy. And it's unlikely that Congress is going to be able to margin enough offensive if it disagrees with the executive branch to effectively restrain his impulses. So I would expect more of the same. And then it's just, it's interesting to think if the war was the top issue of energy prices and affordability were the top issues, tariff again among the top issues. If these are still in the headlines for the next couple of years, and this is the reason why Democrats outperform the polls, you know, it just makes it very difficult. Still, still a long way off, but it just makes the picture very difficult for Republicans in 2028. - Well, Curt, that was very helpful. And as you pointed out to us, a wide range of implications there of the outcome to factors from AI build out to foreign policy, trade policy, the legislative agenda, and on that latter point, chain over the next couple of months, prior to the new Congress taking effect in January, what will lawmakers be focused on? - Yeah, great question. An extremely busy and interesting week in DC, although you know, it may not be something that you realize how busy the week is. What happened? And they have new member orientation. So everyone who won for the first time last night, or if it's called later this week, come to DC and they start to have their orientation where they get a costume to DC, you know, the buildings start trying to hire staff to start picking where their office will be, you know, very basic things, a lot of information thrown at them. At the same time, there'll be elections, you know, you'll have to choose whom they want to leave the party. And then again, at the same time, they have to finish off this year's work. On December 11th, you have government funding expiring as well as a farm bill and a highway transportation bill. And a number of other issues that will take priority, for example, in the Senate, they will try and, or set of Republicans will probably pass one big package of nominations for the Trump administration to get people into not only the judicial, but also, you know, Department of Treasury and many other important departments and agencies. So they have a full plate. Some of it, you know, they may just punt until, you know, Q1 of next year. I think you'll see a lot of incoming Democrats say, hey, kick the can down the road because we want to be part of the eventual solution. So I think you'll do a lot of items, just kind of shift of the date until Q1. So now we'll lead to a very busy Q1 of next year. At two point, we'll start off by government funding highway bill, a lot of talk about potential for a permitting bill, a permitting farm bill that, you know, got breached bipartisan consensus. Will that happen in this lame duck before the -- or will that do, be puntered into next year? And, you know, Kurt mentioned AI. I think AI is an issue that there is a lot of nervousness for members of Congress. They don't want to be seen as not being involved and to hand off. However, they, a lot of them recognize that it's the U.S. versus China and the U.S. needs to lead. And how did they help that while putting up in their mind safeguards for the local community? So a number of issues that are going to be topical in the couple of weeks and months. That'll keep Washington DC very busy. Well, Shane, it's very interesting to hear about the behind the scenes in the immediate aftermath. You mentioned the orientation process, a lot going on there, but a hefty legislative agenda ahead for Congress as well. Kurt, just given all that we've covered on today's episode, in terms of portfolio positioning, what is CIO's messaging at this time? Yeah, so let's just also think about the messaging coming in. We didn't change our portfolio posture around the midterms. It was our view that the evidence was pointing towards gridlock very little in the way of policy change, not much of a departure for the president on foreign policy. So we left our, we had our, I mean, we're making changes all the time, but it wasn't the midterms. We're not a reason for us to be making changes. We want to stay focused on the fundamentals. And the fundamentals for us are always the same, the economic growth, where is Fed policy going because of inflation and the labor market, the direction of fiscal policy and valuations and earnings. So we're still constructive. You'll see in a number of our preferences that we are attractive. That remains the case now, when it comes to stocks, we just want to make sure that we have a diversified exposure to AI across sectors, across themes, and not overexposure to any specific names. When it comes to fixed income, our view is it's not going to be a straight line to lower rates, but that a moderating and economic growth into next year still, healthy economic activity, but a moderation of growth and inflation allows the Fed to step aside. And I mean, that's also good for equities and it's positive for fixed income. And I'll just sort of stick with my bellywick here on bonds is, you know, we talked a little bit about what's the biggest loser, the deficit potentially. I mean, it's not that big of a sea change or all its expectations, but you know, when you have next year, which is likely to still be maybe less, but not a little GDP growth is still high and deficits are not necessarily improving, that just means that we have higher lows for bond yields, but that's not an impediment to investing in bonds far from it. We're talking about a safe portfolio that can generate yield in excess of 5.5, 6 and 4%. That's not something we see very often. And so, you know, thinking about how to blend in, you know, say fixed income diversification at a time when we've already seen equities perform very well, I think it's something that we can engage with our clients. So yeah, fixed income still looking attractive to us, and in some cases we're for clients that are willing to do so, we're taking some interest rate risk in the form of preferences for preferred, but also we're really primarily, you know, focusing our attention on credit. So, that's the picture on the investment side, not a whole lot of changes, sorry, at this point, you know, big change in the makeup of Congress and the Governorships, but, you know, not a big change in our portfolio positioning, we're going to state a course. Well, Kurt Rheim and Shane Lieberman vary timely and sight-fold actionable conversation today, the day after election day, and do you want to thank you for your contributions not only on today's episode, though, throughout the course of 2026 for these monthly top of the morning podcast episodes, keeping our listeners, our clients informed on CIO and UBS's coverage of the midterm elections leading up to them, and the conversation indeed will continue following today on top of the morning and Shane, thank you for the work you do on the Washington weekly podcast as well. Kurt Shane, great to be with you both this morning, appreciate it. You too, Dave. Thank you, Dan. And before we close out, just a couple of housekeeping items and terms of resources coverage from the UBS Chief Investment Office on the midterm elections and outcome, I do want to highlight on the website, UBS.com/electionwatch. There is now available for you a CIO alert report, a U.S. midterms, blue wave ushers and gridlock. We do have coming up for you tomorrow on Thursday, November 5th at 1 p.m. Eastern. My colleague, Anthony Pastore, will be hosting a special CIO, U.S. livestream post-election special. Again, that will be tomorrow at 1 p.m. Eastern Thursday, November 5th. That will feature Ulrika Hoffman-Bacardi, Chief Investment Officer for the Americas. Kurt Ryman had a fixed income for CIO Americas and Leslie Falconeo had a taxable fixed income strategy from CIO Americas, Ulrika, Kurt and Leslie will discuss the results and implications for investors with Anthony again, that livestream tomorrow Thursday, November 5th at 1 p.m. Eastern on UBS.com/electionwatch. 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