In my October letter, I cover:

• What history can teach investors about election years

Midterm elections often dominate headlines, yet history suggests investors should be cautious about making significant portfolio changes based on political forecasts alone.

• Why financial markets and voters do not always see the same economy

Consumer confidence increasingly reflects political affiliation as much as economic conditions. Financial markets, however, have a habit of returning to fundamentals: earnings, employment and growth.

• Investment positioning beyond election headlines

Rather than attempting to predict political outcomes, we remain focused on long-term fundamentals. This supports our preference for equities over bonds, particularly opportunities in emerging markets, alongside diversification through bonds, gold and alternative strategies, as appropriate for our customers.

The value of investments, and the income from them, can fall as well as rise and you may not get back what you put in. Past performance should not be taken as a guide to future performance. You should continue to hold cash for your short-term needs. This article should not be taken as advice.

For around a decade, I studied and worked in Washington DC. And while Washington is only slightly larger than the London borough of Bromley, it’s the epicentre of global power.

Election cycles are the lifeblood that fuels the city. Political debates fill television screens, dominate newspaper headlines and are ingrained into everyday conversations. Every policy announcement and opinion poll is scrutinised for clues about what – and who – could come next. Every four years – and even every two if there was a big midterm swing – the city would undergo a mass turnover of residents. Out with the old, in with the new!

From a UK perspective, it can seem curious that investors beyond US shores devote so much attention to US politics. But the US is not simply another financial market, and a US midterm is a curiosity with global implications.

Why Washington can change the weather

The US remains the world's largest economy, hosts the world's deepest capital markets and is home to many of the leading businesses shaping global innovation. Decisions made in Washington will influence everything from US taxation and government spending, to global commerce, security and regulation.

The US midterm elections are approaching on 3 November. Presidential contests tend to attract the most international interest, but midterms can be equally consequential, helping to shape the balance of power in Congress and the government's ability to deliver its agenda.

As campaigning gathers pace and polling receives increasing scrutiny, investors are once again asking what the outcome might mean for their portfolios.

When will it end? Markets like certainty

History suggests that financial markets are often less interested in who wins a political contest than in when the uncertainty will end. For society, election results matter; for financial markets, the return of certainty matters even more: whatever the outcome, it can finally be priced in.

As the chart below shows, US equities have often underperformed through the summer in midterm years. However, that weakness has tended to give way to improving performance as uncertainty recedes after the election.

Source: S&P Global, Macrobond, Coutts. Data accurate as at 29/09/2026.

Elections create uncertainty, which can raise volatility and weaken confidence as investors price competing outcomes. Once the votes are counted, however, investors are often reminded of a simple truth: businesses still innovate, consumers still spend and economies continue to evolve. Investors are often responding less to the result than to the clearer path ahead.

Bond markets tell a similar, albeit less dramatic, story. Yields can seem changeable around election periods, especially in a world where fiscal responsibility and higher deficits are increasingly a cause for public discourse. Indeed, spending ever more appears to be a rare area of bipartisan consensus in Washington! But over time, bonds have proved far more sensitive to inflation, growth and central bank decisions than the rosette colour of the election winners.

This is the pattern long-term investors may recognise. Political contests can dominate headlines for months, but election weather rarely lasts forever. Once the political weather clears, investors tend to return their attention to the forces that drive investment outcomes over time: economic growth, inflation, interest rates and corporate earnings.

Red, blue or something in between: do markets mind which way the wind blows?

Conversations during US election cycles often arrive at the same question: who would equity markets prefer to win?

That is understandable. Different election outcomes can bring different approaches to taxation, regulation, government spending and trade. But since 1945, US equities have generated positive returns under a range of government outcomes, albeit with a slight tendency for stronger average returns under a Republican ‘clean sweep’ (winning both houses of Congress plus the White House).

Source: S&P Global, Coutts. Data accurate as at 29/09/2026.

But although different outcomes can create winners and losers across sectors, history suggests investors should be cautious about drawing broad portfolio conclusions from the composition of a government alone… even in a nation as globally influential as the US. The surrounding economic and earnings environment has generally proved more consequential for US equities.

Reading the political weather forecast

While history teaches us not to become overly attached to any particular election outcome, it does not mean we should ignore the information available today.

Political analysts, pollsters and prediction markets are all attempting to answer the same question: what will happen on 3 November?

None of these tools are infallible. Polls provide snapshots rather than forecasts, and even widely held expectations can be overturned.

Nevertheless, they tell us something important: not what voters will do, but what prediction markets currently expect voters to do.

At the time of writing, according to prediction markets, the balance of probabilities points towards a divided government – a Democratic-controlled Congress alongside a Republican White House.

Source: Polymarket, Macrobond, Coutts. Data accurate as at 29/09/2026.

More importantly, financial markets are already incorporating the probabilities of different outcomes into prices. Rather than positioning portfolios around one political forecast, we focus on whether policy developments are changing the outlook for growth, inflation and corporate profitability.

The climate beneath the political campaign

One lesson Washington taught me is that political intentions do not always translate into economic outcomes.

Candidates may have clear preferences on taxation, spending, trade and regulation, but their ability to act is shaped by constraints: the balance of power in Congress, the state of the economy, inflation, borrowing costs and the reaction of financial markets. For investors, the more useful question is not simply what politicians want to do, but what circumstances will allow them to do.

Election campaigns often become absorbed by personalities, controversies and campaign moments. Yet voters are frequently focused on far more practical questions: the cost of buying a home, the size of their mortgage payment, the affordability of household bills and the prospects for their next pay rise.

Investors may benefit from paying attention to the same issues.

Financial markets respond to the economic realities and policy decisions that shape growth, inflation, profitability and investment. The most important questions facing voters this year are therefore also some of the most important questions facing investors.

The pressure systems shaping household finances

For many households, the biggest concern is not politics but affordability. Housing costs, mortgage payments and the cumulative rise in living expenses continue to influence how consumers perceive the economy.

These issues matter because the US economy ultimately runs on the confidence of its consumers. Household spending accounts for roughly two-thirds of economic activity, making affordability an economic issue as well as a political one. And in this election cycle, voters are seeking relief in terms of household budgets more than anything else – possibly even above the political and ideological self-identification which has dominated recent elections.

These tensions between growth, affordability and public policy are becoming visible across several areas of the economy. One of the clearest examples is also one of today’s most powerful investment themes: artificial intelligence.

AI: shifting from software to foundations

AI has become one of the defining investment themes of this decade, with the US as its poster child amid a rapid expansion in data centres, advanced computing and related infrastructure.

The next phase of AI investment will require substantial electricity, land, grid capacity and infrastructure. In some states, proposed data-centre developments face greater scrutiny as communities question their effect on local electricity prices, power availability and public infrastructure. What began as a technology and investment story is therefore increasingly entering political debate.

This matters for investors because political pressure could affect how quickly new infrastructure is approved, where it is built and how costs are shared between technology companies, utilities and households. The investment opportunity remains significant, but the path may become more uneven as policymakers balance economic development with affordability and energy security.

Source: International Energy Agency, Coutts. Data accurate as at 16/04/2026.

For us, this does not undermine the long-term AI theme. It reinforces the importance of looking beyond the technology itself to the physical infrastructure required to support it, and of distinguishing between investment spending and the earnings ultimately generated from that spending.

But this opportunity is not confined to Silicon Valley, or even to the US. Emerging markets provide exposure to important parts of the semiconductor and technology supply chain, often at more attractive valuations than developed-market peers. This supports our preference for emerging markets while providing a broader route into the AI investment cycle.

When perception meets reality

As a student in Washington, I worked behind the scenes on CNN’s political debate show Crossfire. The hosts, James Carville and Tucker Carlson, sat on opposite sides of the political spectrum, but the debate remained lively yet civil. Afterwards, everyone would head to the same bars to decompress together.

More recent visits have revealed a much more divided atmosphere, with a palpable sense of political polarisation. According to consumer surveys, that divide increasingly extends to how Americans perceive the economy.

Consumer surveys tell us how people perceive the economy, but perceptions do not always move in line with spending, employment or growth. Instead, supporters of each party tend to become more optimistic when their preferred party holds the White House and more pessimistic when it does not. 

Source: University of Michigan, Macrobond, Coutts. Data accurate as at 25/09/2026.

This does not make sentiment surveys irrelevant, but it means they should not be interpreted in isolation.

Weak confidence does not necessarily imply that consumer spending is about to collapse or that recession is imminent. We therefore place greater weight on the harder evidence from employment, household income, actual spending, economic activity and corporate earnings.

The fundamentals forecast: earnings, employment and economic growth

Earnings remain one of the most important drivers of long-term equity returns. Companies can adapt to changing administrations and shifting policy priorities, but generating sustainable profits arguably matters more than political messaging. That is one reason we continue to look beyond political headlines and focus instead on regions and companies where the earnings outlook remains attractive.

The labour market offers another lens through which to assess the underlying strength of the economy. Employment influences household spending, business confidence and the broader pace of activity. A healthy jobs market can support growth even during periods of political uncertainty.

Economic growth provides perhaps the broadest test of all. Elections may influence policy, but prosperity ultimately depends on businesses investing, workers earning and consumers spending.

So while voters may decide how they feel about the economy, financial markets eventually have to decide what it is worth. In my experience, long after campaign slogans have faded and polling stations have closed, investors are still asking the same questions: are companies growing earnings? Are consumers spending? Is the economy expanding?

Or, in the immortal words of the Democratic strategist James Carville: “It's the economy, stupid.”

Positioning for the weather ahead: our core investment views

Continuing to favour equities over bonds

While bonds can play an important role in portfolios, we continue to see a more attractive opportunity set in equities. Corporate earnings have remained resilient, and we believe the outlook for profit growth continues to support long-term return potential. Periods of equity market volatility are inevitable, but history suggests that businesses capable of growing earnings over time have often rewarded patient investors.

Finding opportunities in emerging markets

We continue to see attractive opportunities in emerging markets. Valuations remain appealing relative to many developed markets, while several economies benefit from supportive structural trends, improving corporate profitability and growing domestic demand. In our view, these characteristics provide a favourable backdrop for long-term investors.

Aiming to build resilience through diversification

No investor can predict every economic, political or market outcome. That is why diversification remains central to our investment approach. Where appropriate for our customers, we see gold as a potential source of resilience within portfolios, while liquid alternative strategies can provide access to different drivers of returns, helping to broaden diversification beyond traditional asset types.

When the clouds clear: beyond election night

As 3 November approaches, financial markets may experience patches of turbulence as investors assess competing political outcomes. Elections can affect policy, individual sectors and short-term market behaviour, but they rarely determine the direction of diversified portfolios on their own.

What matters is whether political developments materially change the outlook for economic growth, inflation, interest rates and corporate earnings. Those remain the foundations of our investment view.

Having spent years watching politics in Washington DC, I understand why election campaigns can feel all-consuming. Yet markets have a habit of moving on. Once the ballots are counted and the headlines begin to fade, investors are likely to find themselves back where they started: focusing on earnings, growth, inflation and the economic outlook.

Election night may influence the market weather for a few days, or even weeks. Earnings, growth and inflation help shape the investment climate.

Yours sincerely,

Fahad Kamal 

Chief Investment Officer