Pricing Policy Risk

Research evidence excerpt

Pricing Policy Risk

IdeaMlegislatively less productive, what do markets value more: the lack of potentially

favorable legislation (like tax cuts, federal incentives, or other changes) or the

certainty inherent in fewer political variables changing?

2. If Congress is reasonably less productive, does that increase the focus that

investors should place on President Trump's social media posts and the policy

vectors that can be controlled through the executive branch alone? And are equity

& bond markets sensitivities to these posts shifting over time?

3. How do these findings compare with our current asset allocation

recommendations & our expectations for markets in 2026?

As we detail in the analysis below, we see the following stylized—very stylized—facts:

• The midterm election outcomes seldom have seen any outsized over- or under-

performance in equity markets in the 3-6M after the elections

• Outsized over- or under-performance in rates markets is a function of what the Fed

does rather than midterm election outcomes; the exception is if there's an

expectation for more/ less gridlock around budget negotiations

• Stock returns are becoming increasingly less sensitive to headline risks around the

president's social media post

• Bond returns continue to be sensitive to those headlines, but only in large part

because social media posts on Iran in recent months have had a clear macro read-

across

• We are not expecting significant macro impacts from midterm election outcomes,

but rather, shifts will be felt at the micro level

Or maybe in even more simple terms, equity and bond market moves are driven more by

macro rather than political outcomes from midterms elections themselves or individual

social media posts.From a policy perspective, that means that tariff/geopolitical