How Midterms will F**K Up the Stock Market

$3 trillion of data center spending sits on this election. In this video, we're going to break down exactly what could potentially go down if we end up with Republicans remaining in control, which seems unlikely right now. What happens if Democrats sweep? Uh-oh. Oh, or is it a good thing? And what happens if Democrats get a little bit of a victory? Hint, hint. It all has to do with a lot of this because what happens up here is a mandate for what local governments should end up doing. And boy oh boy, local governments right now have control of about 50 gigawatts gigawatts of potential data center spending. Mind you for a moment that every gigawatt so every one of these 50.8 8 gawatt would cost about $57 billion to deploy with the latest Vera Rubin chips from Nvidia or other leading edge frontier level chips. That is insane. Just for quick math, that's almost $3 trillion in spending. And if you put a velocity of money factor on that of about three, it could potentially lead to $9 trillion of economic boom, baby. I mean, at that point, Kathy Wood will be right with uh, oh yeah, boys and girls, we're actually growing GDP at 7 to 9%. This whole idea that GDP is growing at 4%, that's a scam. [laughter] But I have to say, you know, some of y'all are spending or at the very least investing. Many of y'all have been buying the dip as I've called out peak fear around $700 on the cues. We bought the dip before that, we bought the dip after that, you name it. But I really want to thank you for being subscribers on this channel. And also huge shout out to those of you who have been members on the channels because uh on the channel because look at this. I'm going to put this up on screen and this is insane. This is literally our Reinvest Stripe account just today. And this is because members are upgrading to the Reinvest One platform. That means people who have already been part of our course member live streams mostly there are some new signups in there as well but people a lot of people who have been part of our existing ecosystem are like oh yeah we want to upgrade like we already have lifetime stocks or trade alerts but you know what we want the other stuff as well and that's really exciting because if you haven't checked it out yet go look at reinvest one we're going to raise the price on Thursday evening it's our super intelligence terminal that launches later this here. And what it really is is everything that we have to offer right now. The alpha membership, the trade alerts, the stocks terminal. What's remarkable about this, and I don't think people get it, and that's okay. It we're going to build it out. It's going to be really, really amazing. But human in the loop, actual research on stocks with various price targets, the bear, bull, base case, you name it, and something that actually is usable. Think about it like a Bloomberg terminal that actually gives you more than a fancy chatbot to, you know, the suits on Wall Street. Something that actually gives you insight for consumers. And you can get lifetime access to this right now. So, we're really excited about this. Plus, the Reinvest Homes platform, the courses, the live streams, and the new Agentic AI modules that are coming out in Q1 and Q2. Man, it's a pretty good offer. Honestly, it's too cheap. But anyway, this video is supposed to be about what's going on with who's going to win in midterms. So, right now we're sitting at about a 64% chance on Koshi, also a sponsor of Reinvest, uh, of a Democratic sweep. And these odds have really popped off right around September 11th to 12th and 13th. That's roughly when we were making videos about how we're about at peak fear right now. Mostly because that's when we had our tanker for tanker policy at the beginning of September. And we had a lot of strikes with about seven oil tankers downed in the span of about a week. That's a lot. It was five to seven somewhere in there for oil tankers. That's a lot. Really helped spike oil up to $100 $109 per barrel. And so I don't think it's a coincidence that since then and since these sweep odds have been increasing, Donald Trump has gotten a little bit more aggressive in, oh hey, we need to win midterms. We're going to try to buy votes. We're going to try to get $5,000 out to every US citizen who votes for Republicans. Well, presumably every US citizen because I don't think they can actually break it down by who voted for what. you know, that'd be crazy. But it just be all US citizens if Republicans win is the idea. I I don't know that that's going to have much of an impact. I personally think that a lot of people are going to look at that and say, "Hey, you know, I've heard promises before, and I'm not going to hold my breath on that." Uh, and it's not unusual for politicians to try to buy votes. I mean, frankly, Gavin Newsome did exactly that with uh his stimulus relief checks. But let's see what Morgan Stanley tells us. So Morgan Stanley has a few points of view over here and we're going to go through some of these. So the first thing I want to do is start with this chart right here. So they believe that if Republicans win, we actually end up with a sort of status quo. This has about a 7% chance right now. And we end up basically with the same stuff where we have tariffs, we end up having debt that expands and we have higher treasury yields. So, I want you to think of Republicans winning as basically higher for longer yields. This isn't a diss on Republicans. It's just a sign that Donald Trump then has the market's going to price in some chance that Donald Trump is actually going to go for more tax cuts or more stimulative spending, more deficit because of defense, more, you know, potential tariffs getting charged and then refunded which creates massive economic loss, but whatever. We don't have to go into that. All of that kind of gets priced in in terms of higher yields because they're seen as inflationary. Uh and so with this, the key drivers here are yields and oil up, not great. And so, of course, earnings can try to bail us out, which they have been. I personally am of the mindset that our economy has done this really crazy thing where in 2022 we were probably really supposed to go into a recession, but I think buy now pay later sort of made it that the American wallet that was shrinking all of a sudden expanded again, [laughter] which is kind of crazy. Buy now pay later basically bailed us out in 22 uh 2022. Uh, and then after that AI came along. That is pretty wild [laughter] if you think about that sort of transition. It's like, oh no, we're out of money. Buy now, pay later. Oh, sounds good. [laughter] And then you use your BNPL and you maxed out out and then it's like, what now? AI. And the next thing you know is as soon as AI kind of starts rolling over robots, let's just never have a recession again. There'll be a recession, [laughter] but it does seem kind of crazy, right? So anyway, the risk here is basically Republicans win. You get your $5,000, but now we have higher yields. We're more reliant on earnings. uh you know obviously good for Donald Trump and maybe what he's going to be able to do for Latin America sort of build out in Venezuela or whatever. Uh but people see the upside here as defense stocks, financials and nuclear energy as well as data center REITs. We'll go through some of those tickers in just a moment. But I I kind of agree with this. I think defense stocks are a big winner. I think they spend more over here. Financials usually win when you have a government that's pumping more and more spend on uh and financing on data centers because all that financing has to be underwritten and then fees get taken. Uh and those fees are really really big. This is why Axios ran a piece this morning and they're like dude fees on Wall Street are up like 68% or 69% year-over-year. It's just crazy. So, one of the reasons you're also seeing kind of a boom in Manhattan. But anyway, uh Morgan Stanley then goes to the scenario where we move from, oh, okay, Republicans right here, hire for longer over to what happens if we get a Democratic sweep. So, the interesting thing about the Democratic sweep is Morgan Stanley wrote this. Okay, they actually think this would be the most positive for growth, which is kind of insane to think about because usually when we think about like how is a divided Congress good for growth, like nothing's going to get done. And that's the point. Nothing gets done. You basically have a hardcore blockade against Donald Trump and uh tariff policies, potentially war, whatever. You'll still have def deficits, but you'll you'll limit some cuts to Medicaid. You'll limit some cuts to SNAP as Morgan Stanley's take right here. Uh and you kind of kill some of the Treasury supply risk. That's the risk under the Republican scenario is that they just keep issuing issuing and issuing debt at the same time as Saudi Arabia, Japan, and Europe are dumping our US uh treasuries making or contributing to yields going up. Right? [snorts] So uh there's also the expectation that you might end up getting more restrictions on data centers and this actually uh overall makes them less interested on data center rates and democratic sweep scenario. They're actually more interested in healthc care services consumer staples. So I kind of think about like Walmart although they've become a little bit of like a tech play. I mean they're NASDAQ 100 now. Uh, and then also retail, restaurants, and renewables. Now, I 110% stand behind the renewables idea. I think no matter what, we're going back to a future where solar panels and wind and nuclear all become core premises of the future of sustainability. And we go back to this like this whole like Trumpian oh the windmills are killing the whales is a and and b like it just doesn't make sense which is somewhat similar. Uh but the point is like we've gone a little extreme making fun of windmills or solar or whatever. It's not necessary. I get it. He wants to make himself stand out as like oh we're anti-green New Deal. We're pro-American oil and natural gas. I get it. You need those votes. you need those uh you know dirty job votes, that's fine. But we're going to go back to a future of renewables. Like the future will be renewable. I'm certain of it. It's just going to go through these political kind of swings, whatever. Uh and and honestly, as long as the consumer holds up and keeps getting jobs, restaurants can come back, retail and consumer places come back, malls can come back. You Simon Property Group has already been performing very well. Uh re what is it? Red Robin Gourmet Burgers was about to go bankrupt and then JP Morgan bailed them out with a massive uh emergency loan like a year and a half ago and then they just completed a massive refinance because they're screwed on debt. I mean, geez, the company was in a really tough spot between a rock and a hard place while they had negative earnings growth. You know, I mean, not only negative revenue growth, I should say, but also losing money. There were some real problems there. But now that they've managed that, you've actually seen a recovery in the stock. And it makes sense because they got bailed out. We could see more of those sort of enablements, if you will, of the consumer by either providing more uh how would you call it? Safety net uh ex like safety net programs, social welfare programs, right? The less we're cutting SNAP, uh, the less we're cutting Medicaid, the more money is being distributed via welfare programs, the more money can broadly be spent by the lower class or the middle and upper class. I mean, really, everybody, right? Everybody can spend more on this, but specifically affects the lower class. I think that's why they're they're arguing this right here. Okay. Then if we go to a narrow win uh by uh how should we put it by um Democrats, this is a 31% chance. So the Democrats win the House, Republicans win the Senate. In a narrow win, we kind of get the worst case scenario. You get gridlock, but a bad kind of gridlock. You get sort of shutdown style gridlock, which is not good. So if we go over here and you get that small Democratic victory where they win the House, so the Democrats take the House, this would be bad because it's gridlock. Basically, Democrats sweeping, ironically, would be considered good for Treasury yields, stalemating uh some of the spending and the deficits. uh and then Republicans holding is probably like somewhat good, right? So like one of these scenarios is better than uh a half Democrat, half Republican because then Democrats will have the power to sandbag that 51st vote. And if they do that, then the government just stays shut down and they try to strongarm Trump. And Trump's the kind of guy who's like, "F it. Leave the government shut down. I'll going I'll just call Mr. vote and he'll just fire a bunch of government workers. So that honestly that scenario is like an SH9 show and it hurts growth and it makes sense. That's what Morgan Stanley says as well. Growth downside shutdowns more likely cut roll back uh like roll backs um how should I put this less likely to see a reduction. This is this is like so counterintuitive how this is written, but basically Republicans want to cut benefits to SNAP and Medicaid. If Republicans don't have a sweep, then it's less likely that they're going to be able to save those programs. And so Republicans can then dig in their heels, but then Democrats will dig in their heels, and that's what ends up leading to sort of gridlock and government shutdowns. But the problem with that is then you're also likely going to get the greatest data center push back. Okay, so this is really important because if there's gridlock and data center push back in Washington, there's more likely to be problems in local governments in state and local governments for this spending right here. Mostly because the idea is then we have 2 years of mudslinging trash where these politicians are mudslinging about how bad data centers are, how good data centers are, and basically the political campaign for 2028's presidential election carries all this data center gigawattage that could happen over into 2029. Now, Morgan Stanley actually has a good point about who could win uh if capex slows down because of local slowing down. And spoiler alert, it's the big guys. It's always the rich that win. You know, I just did a video where it's sort of like Donald Trump's doing like or is able to accomplish the greatest wealth transfer we've ever seen. I really believe that, by the way. I think that's right on point. Uh and so you watch that video. But anyway, in that video, we kind of make it clear where it's like who's getting bailed out, the big boys. Ironically, in the event that there is a supply slowdown or capex slowdown, who wins? The big guys. And so, I'm going to show you that. Oh, look at that. Literally, while I was filming here, it's the pace has slowed down a little bit because it was crazy this freaking morning, but we've caught up with all our emails. We had like 300 emails or whatever. Uh, if you ever have questions, you can hit us up at staffreinvestone.com or just check out online reinvest.com. But that's crazy. But anyway, uh, [laughter] okay. So, who wins? The hyperscalers. It's the rich. It's always the rich, boys and girls, ladies and gentlemen. Don't you know it's always the rich that end up winning? And so a deceleration in capacity could potentially intensify or prolong the existing shortfall in compute benefiting predominantly the hyperscalers by impre in increasing increasing pricing power reinforcing our strong conviction in high quality hyperscalers. So I actually agree with this because as you you know make it harder to finance data centers you make it harder for people to start companies like Nebus which I actually think is about to break out to 336. You make it harder to pull that off and you make it easier for companies like Microsoft, SpaceX, Meta, Amazon, Google to basically be like, "Yo, well, we already got all these data centers. Why don't you just use our stuff at a premium?" [laughter] Kind of crazy. Now that interestingly that lower capex could actually end up leading to lower debt issuance reducing the hedging that we're seeing in credit default swaps. So, in like the weirdest way possible, those data center headwinds end up helping the Mag 7 and they end up benefiting uh uh you know, all of their pricing power while at the same time just delaying the buildout, increasing the shortage inflation, but decreasing the amount of debt that's being raised, meaning we're we we end up with more AI inflation, but ironically, lower credit risk. Man, that's a lot to digest, isn't it? Anyway, the point is the big guys survive it, right? Okay, so the other thing that's kind of wild is one of the ways that some of this stuff can actually peak out is that if we end up getting a sweep or Republicans control, okay, so if we go into this scenario right here, either of these scenarios is probably better. And this right here is $5,000. 5K. All right. But what else could one of those two things accomplish? One of those things could actually accomplish peak fear around data centers. Say Morgan Stanley and I think they have a good point here. They basically say once you get through midterms, if one of those happen, one of those two scenarios, maybe we could finally shut the f up about all the data center fears and we could get over this quote unquote hot button issues issue and we could just move on from all this yapping about data centers. Kind of interesting if we think about it like all right, I could see that. And then all of a sudden people actually look at AI as well, it's actually helping me. This is actually productive. We see this as beneficial for health care. we see this as beneficial for uh you know jobs or whatever like maybe people will see the good right we don't know but I actually wrote that down uh in here you know Mona ended up with its cancer vax uh that's in phase three so still TBD but in my opinion partly because of artificial intelligence see that right here positive breakthroughs help artificial intelligenc's PR public relations and so here. If people start seeing tangible societal goods, for example, drug discovery, longevity breakthrough, measurable productivity gains that show up in wages, blah blah blah, rather than risks and safety events after this election cycle is over, like where I wrote here, the Mona vaccine, then all of a sudden maybe we just totally move on from these concerns and local governments start going, you know what, let's just tax it and build it. I mean, my take is just just add a little bit of sales tax to these things and speed their permits up. Honestly, like if you put that on a ballot and you're like, "Hey, right here, Indiana's doing it. HB1 1333 redirects a share of data center sales tax revenue back to the local governments." Dude, that's freaking brilliant. Like, hey, we'll open up a new fire station in this area if if everybody's okay with this data center over here away from where the houses are. Fine, do it. [laughter] you know, like that means that those are potentially fewer taxes that everybody else has to pay to sustain a certain, you know, municipality or or um whatever county, whatever it is. I remember uh in the city that I'm in, they actually closed down for years because of budget cuts what was called Fire Station 4 and they reopened it after, of course, they passed more taxes like an increase of the sales tax. If data centers can pick up that bill, then the people don't have to pick up the bill. Uh, now I'm not here to propose more taxation, but I actually think that a fair compromise is, look, would I rather as a data center provider be caught up for two years in permits or somebody tell me, look, I'll get you a permit in 3 months. You're just going to have to pay some extra taxes. I'd be like, f it. Okay, we'll just underwrite it with the taxes. Like, let's go. Who cares? Like, let's let's get going. Okay, because indecision is typically the worst decision. I'm a big fan of decide and if we made a mistake then pivot, but the last thing we're going to do is sit around and and sleep on it. You know, I feel like that's usually what happens in the permitting process. And of course, there's some risk to the labor market, but even Morgan Stanley here argues that right now it's too early to really see what's going on because in some areas, you could argue that AI is labor augmenting and boosting productivity in real wages. But then we just had a big miss on real wages on the last BLS report. And unemployment in high exposure areas to AI is rising substantially. However, it's not rising enough to where it's overall having a big effect. They think that AI is contributing maybe.15% to the unemployment rate. So, so far, even though layoffs are rising more sharply for the highest exposed occupations starting in early 2025, and fortunately those flows seem to have stabilized, they're still not big enough to create a bigger economic, you know, the canaries dying in the coal mine. So, that's a lot of information to digest, but it actually suggests these midterms have a really big impact on how all this data center stuff is going to play out. Now, worth taking a little glance at Kelshi. So, Kalshi is a a sponsor of the channel. Uh I'm a big fan of looking for opportunities to snipe over here. Um if this gets low enough on the Republican sweep, I it is very unlikely, but if this gets down a little bit more, I might put a little bit of a bet on this because I think there's a greater than 5% chance that Republicans sweep. If this gets down to like 3%. And then all of a sudden we get a deal with Iran, inflation numbers start coming down and people get tempted by that $5,000. I don't know. I don't know. But this is an interesting one that I'm watching. And there's a lot of volume on this market. So I kind of like that $51 million on that market. But we'll see. At 8% I'm kind of like I I I don't I don't know how I feel yet. I haven't made a position. I probably won't for the time being. I usually like playing on the Fed. And if you want to, you could always use my sponsored or reinvests sponsored kshi.com/rmekevin. Get a free $25 when you sign up for Kelsey and make your first trade, which is kind of cool. Give it a shot. See what it feels like. Uh it's kind of cool. I I personally, again, I like the Fed. But let's now consider some other data here. Bank of America is suggesting the S&P 500 being up 13% in 2026 so far is way higher than a typical 3% you would expect in a midterm year. That's a really good thing despite all the volatility we've had. The problem is affordability. Hourly pay is up 3% year-over-year. CPI is up 3.4%. Which means consumers are getting crimped and and that's one of the reasons we're seeing consumer sentiment in the toilet. Gas prices up, oil prices up, electricity prices are up like 3.3% year-over-year. So, residential power is going up. It's a lot. I don't know if people are going to believe the Trump dividend, the $5,000. And that's the biggest risk for Trump is that people just they're not going to buy it. So, the other thing that uh you know people keep talking about is, "Hey, well, what about that $2,000 tariff rebate and the Doge dividend?" In fairness, Donald Trump probably should have branded this $5,000 as the collective rebate of all of that just to make sure he was trying to make good on that. He could have done that. He could have just said that. Or I mean, at this point, just if you're going to promise it, go make it $7,000. you know, 1,000 for each of those, whatever. Uh, $500 from the ACA that was refunded. Remember, that did not actually come from deficits. Uh, although they could have, that money could have been used to pay down the debt, but no, instead they sent out ACA refunds of $500 Affordable Care Act refund. That's from uh collecting too much money from more enrollments coming in for website funds that they really didn't end up needing. Anyway, so we'll end up seeing right now there's an expectation of about 61% of likely voters according to the economist in Yugov suggesting that there's no way Donald Trump is going to send the checks and likely voters suggest that 45% of them oppose the checks probably because people are like, "Bro, when are we ever actually going to pay off the debt?" We'll see. If Republicans do win though, now all of a sudden reconciliation, 51 votes, stays open for defense, tax extensions, and $5,000 checks. So, they actually have a path to getting to those $5,000 checks, which is pretty crazy. You could buy yourself almost two reinvest one subscriptions with that. And I shouldn't even say subscription because it's it's lifetime access. Although in 2027 when we'd actually potentially get the checks, then it's going to be a subscription. The whole thing, the whole kitten kaboodleoodle, lifetime's going away because well, we I call it social security. We kind of need the new people coming in to pay for the old people's data. And so if you get in by the end of the year, you're still part of the old people. [laughter] Uh anyway, Morgan Stanley, uh oh yeah, let's look at some more Morgan Stanley tickers here before I forget. So, they had a few more tickers. I mentioned already a little bit about Green Energy. Uh they're into they've got a whole list of like data center ones. Uh they're also into behind the meter power plays. Big fans of Bloom Energy. Take a look at this this page right here. So, they suggest that if Frontier model releases slow down, you actually end up having a boon to potentially the companies that use openweight models. So your Palanteer, your Crowd Strike, Palo Alto Network, Shopify, Service Now, Dell, Riot, Nvidia, Microsoft, blah blah blah blah blah. Uh, and they still maintain that Crowdstrike, PaloAlto Networks, and Octa uh, are really good cyber plays. Big fan myself of Cyber. They're very expensive. There are some less expensive cyber plays. There's one in particular that I like for endpoint management that we talk about in the Reinvest One membership, and that one's been doing pretty well. Uh, as far as behind the meter plays, they're a big fan of uh, Bloom. You could look on screen here. G Vernovo, the Neoclouds, Neoclouds really, you you need you need this whole like anti-data center stuff to chill out. As long as that chills out Nebius and these, they can actually finance more and they can grow. Because, see, it's more the the thing is it's more than just the debt and picking up the actual chips. It's actually running the stuff. Like you can't just go buy chips and plug them in and expect it's going to work all the time. You actually need, you know, each data center has like 50 engineers on site running around making sure this, you know, unplugging and replplugging the Nintendo, you know, cartridges, plug it back in kind of stuff are up and running. That's a lot of work. So, it's a lot to consider. You know, data center doesn't just run itself. But anyway, uh this this these are just some of their ticker ideas that they have mostly just on the data center build on and it's booming frankly the data center I mean our use of AI has been exploding and that's why you know we are creating products that we call human in the loop products and we're going to be hiring a lot probably a lot more than we already have uh in 2027 uh you know so we get more human in the loop researchers involved involved uh with providing really good value in this terminal because I I know the deficits of the Bloomberg terminal and I'm like, "All right, I'll kick you guys' butt. [laughter] I remember my disappointments when I joined the terminal, the Bloomberg one, and I'm like, really?" Yeah, it's all right. So, anyway, uh it'll take some time to build out. It's not going to happen overnight, but it'll come over the next year. We're going to have something really sick. Anyway, so um this gives us a little bit of a breakdown. Something else to think about is we do have shutdown votes potentially at the end of the year. So those will come up again in December, which is really annoying. Nobody loves those. But you will end up having very likely another shutdown if Donnie T is up against uh you know a split Democrat and Republican House and Senate. Because if it's all Democrats like Trump will he'll figure out how to work with him. Surprisingly it'll nothing will get done. he'll just operate through executive action but it'll be better than the than the struggle for for control. Uh what's also very interesting is Vive Ramwami Republican has literally come out and said quote no more new data center project announcements in Ohio. So he's really trying to pick up on this idea of oh yeah we're going to work for the little guy the affordability we're going to stop the data centers. Well, again, the more they talk about stopping the data centers, the more it just helps get the rich to become richer, like Microsoft. I think it's because it's just seen as like a bipartisan way to like beat on something that apparently people are supposed to be really up in arms about. Whatever. I to me I'm I'm mostly of the mindset of like look, don't put a data center next to the houses. There's plenty of room to put them elsewhere. speed up the permitting for them and let our economy crank and let us have that technology here in America as opposed to, you know, in Norway or China. Something that I watch. Uh, you know, another thing to watch, I mean, we talked about the labor market. The labor market's overall doing fine. We've talked now about some stocks that could win here. Uh, obviously, everybody's still waiting for the anthropic and open AAI IPOs. almost certain that those are going to be after midterms. Uh, another thing to watch is regarding midterms. We also have a Fed rate meeting like 5 days before midterms. The odds of a rate hike there are about 36ish%. I think the odds there are probably zero at this point, unless we get like a really bad CPI report on the 13th. So mark your calendar for the 13th for CPI, but I don't think that's likely. I think expectations are already high enough to where it's not going to get even worse. Uh and then we have a report from Bank of America that after midterms, you tend to see gains in every 6 to 12 month period since World War II. And in three month periods, we were up nine out of 10 times. So generally the market is good after midterms. history really favors the 12 months after midterm. So, you know, I'm not saying, oh, yolo in, but it doesn't hurt to be long this market on sort of a low debt, lowrisk exposure basis. Big fan of that. Obviously, still some risk that maybe yields aren't really being respected. the fact that we're at, you know, a 102 curve. That's at shock territory again. And we're at what did we end at today? Let's go find out. Well, we were like 528 this morning. We ended at [music] 52826. You know, we're right there. We kind of stuck in the mud around my call of highs peaks around 527. I realize that number's a smidge above that, but I think we're pretty dang close. You know, the rubber band is fully stretched, I feel like. Can you get a little bit more out of it? Sure. But it really wants to come back really quickly. So, we'll see. But that's my take on midterms. Go to reinvest one.com. We'd love to see you there. If you like that video, check this one out. I think you're going to love it. >> Why not advertise these things that you told us here? I feel like nobody else knows about this. >> We'll we'll try a little advertising and see how it goes. >> Congratulations, man. You have done so much. People love you. People look up to you. >> Kevin Pra there, financial [music] analyst and YouTuber. Meet Kevin. Always great to get your take.