Do you remember your last college exam? The challenge wasn't simply learning the material.It was figuring out what mattered. With hundreds of pages of notes, textbooks, and lectures to review, success depended on separating the essential facts from the distracting noise. This strategy is often called targeted fact-finding, and it can be just as valuable when navigating today's economic and market environment.
Recent post-midterm election volatility has captured headlines, but we believe the underlying story for investors remains largely unchanged: economic fundamentals continue to drive long-term market outcomes. The powerful Artificial Intelligence (AI) investment cycle is becoming increasingly intertwined with the broader U.S. economy, influencing trade, business investment, employment, and market performance.
Politics may create headwinds, but not necessarily derail AI
Following the Democratic midterm election sweep, increased regulatory scrutiny surrounding data centers, power consumption, and permitting processes could slow portions of the AI infrastructure buildout. However, the broader trend toward AI adoption remains intact, with the focus increasingly shifting from simply building capacity to generating productivity gains and corporate earnings from those investments.
AI continues to fuel economic growth
The rapid buildout of AI infrastructure, including data centers, semiconductors, and computing equipment, has become a significant driver of business investment. While U.S. GDP expanded at a healthy 3.4% annualized pace in the third quarter, surging imports tied to AI-related investment widened the trade deficit and weighed on reported economic growth.
The next phase of AI may benefit the labor market
Beyond AI hardware and infrastructure spending, companies are increasingly investing in implementation and integration. Demand for technical consultants and AI specialists is rising as businesses seek to embed AI into everyday operations, potentially creating a new wave of productivity-driven economic growth.
Markets historically reward patience after midterm elections
While history never guarantees future results, market performance following midterm elections has been encouraging. Since 1950, the S&P 500 has delivered positive returns in the 12 months following each of the last 19 midterm elections, with an average gain of 15.1%.
So, what is signal and what is noise?
While political developments can influence market sentiment and specific sectors in the short term, long-term investment outcomes are still driven primarily by consumer spending, corporate earnings, economic growth, inflation, and productivity gains driven by innovation, including AI.
In other words, political opinions are best expressed at the ballot box, not through portfolio decisions. Maintaining focus on fundamentals rather than headlines has historically served long-term investors well.
Bottom Line
At HighWater Wealth, we continue to favor equities over fixed income from a tactical perspective, supported by resilient economic growth, AI-driven earnings potential, improved policy clarity following the election, and historically favorable seasonal trends. We maintain a preference for high-quality companies and believe investor skepticism surrounding the AI buildout may have become overly pessimistic.
While election-related uncertainty may continue to create short-term volatility, the bigger story remains the strength of the economy, corporate profitability, and the ongoing AI-driven investment cycle. For long-term investors, fundamentals remain the most reliable guide through changing political and market environments.
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