Politics Change. Great Businesses Endure.

Dear Clients,

With most votes now counted, Democrats appear to have gained approximately 30 seats in the House of Representatives, 7 seats in the Senate, and 5 governorships nationwide.

While the headlines are significant, the outcome is broadly consistent with history. Midterm elections have long served as a rebalancing mechanism in American politics. In a president’s second term, it has been common for voters to shift power toward the opposition party regardless of whether the economy was expanding, contracting, at war, or experiencing strong market returns.

Historically, second-term midterm elections have often resulted in voters shifting power toward the opposition party. On average, the president’s party has lost roughly 29 House seats and 6 Senate seats during these elections as voters seek to rebalance power in Washington.

For investors, the election matters. More importantly, it marks the latest in a series of major events that have provided greater visibility into the economic and investment landscape heading into 2027.

Key Takeaways for Investors:

1. Several Important Questions Have Been Answered

Markets have spent much of 2026 focused on three key questions:

• Would AI spending continue to support earnings growth?
• How restrictive would central bank policy become?
• What would the midterm elections mean for markets and policy?

Today, investors have greater visibility across all three:

• Midterm Elections: With the election outcome largely known, investors and businesses can spend less time debating political outcomes and more time focusing on economic and corporate fundamentals.
• Q3 Earnings & AI: Results from large-cap technology companies largely confirmed that AI demand remains exceptionally strong. Cloud growth continues to accelerate, enterprise adoption is expanding, and major technology companies remain committed to investing aggressively in data centers, compute infrastructure, and AI capabilities.
• Central Bank Policy: Inflation has remained more persistent than many anticipated, leading the Federal Reserve to maintain a relatively hawkish stance. Policymakers continue to face uncertainty from both the supply side, including potential inflationary pressures stemming from tariffs and geopolitical tensions in the Middle East, and the demand side, where significant AI-related investment spending has added to economic demand and inflationary momentum. While higher interest rates continue to create challenges for certain sectors of the economy, investors now have a clearer understanding of the policy framework and the likely path of monetary policy going forward.

2. Midterm Election Years Have Historically Been Volatile, But Investors Have Been Rewarded

Midterm election years have often been among the more volatile periods for U.S. equities. Political uncertainty, policy debates, and investor anxiety frequently contribute to larger market swings.

However, history also shows that periods of volatility often create opportunity.

Since 1950, the S&P 500 has delivered positive returns in the 12 months following every midterm election, averaging approximately 15%. While past performance is never a guarantee of future returns, markets have historically responded favourably as uncertainty fades and investors refocus on corporate earnings, economic growth, and business fundamentals.

That said, history should be viewed as a guide rather than a forecast. Much of the volatility during President Trump’s second term has stemmed from executive actions rather than congressional legislation. As a result, the historical average may not represent the base case this time around.

3. What Do We Think Happens Next?

As we look ahead to the next two years, our focus remains firmly on fundamentals.

Several developments are worth watching:

• A Transition Period Until January 3: Republicans will retain control of both the House and Senate until the newly elected Congress is sworn in. This creates a short window during which spending measures, funding legislation, regulatory initiatives, executive appointments, and other policy priorities may still move forward before the transition is complete.
• A More Measured AI Buildout: While AI demand remains exceptionally strong, increased state and local scrutiny of data centers, power consumption, and infrastructure development could slow the pace of expansion. Hyperscalers and other AI infrastructure investors are likely to bear a greater share of the costs associated with securing power, funding grid and utility upgrades, and ensuring projects meet environmental standards while maintaining community support. While this represents a near- to medium-term headwind to AI infrastructure deployment, related capital spending, and near-term returns on investment, a more measured buildout could ultimately prove healthier by reducing infrastructure bottlenecks, improving capital efficiency, and moderating inflationary pressures associated with rapid investment cycles.
• Trade and Geopolitical Developments: A divided government may encourage a more pragmatic policy approach. Progress on trade negotiations, reduced tariff pressures, and a gradual easing of geopolitical tensions would likely be supportive for business confidence, global investment, and economic growth.
• Corporate Earnings Remain Strong: Consensus forecasts call for approximately 20% annualized earnings growth for the S&P 500 over the next three years. Because earnings growth remains one of the primary drivers of long-term equity returns, we continue to feel positive about our positioning despite recent volatility. While markets will undoubtedly react to political and economic headlines in the short term, long-term returns are ultimately driven by businesses’ ability to grow revenues, earnings, and cash flows.

4. Why We Continue to Invest in the United States

Despite changes in Washington, our investment thesis on the United States remains unchanged.

The U.S. remains home to many of the world’s most innovative companies and industry-leading franchises, offering investors exposure to global leaders in technology, healthcare, financial services, consumer businesses, and industrial innovation.

Supported by deep and liquid capital markets, a culture of entrepreneurship, and a long history of innovation, the United States continues to provide one of the broadest and most compelling opportunity for long-term investors.

Many of the businesses we own generate revenue globally and derive their value from innovation, execution, strong leadership, and durable competitive advantages rather than election cycles.

Our Perspective

Political leadership changes. Congress changes. Policies evolve.

What has remained remarkably consistent over time is the ability of innovative businesses to adapt, grow, and create value for shareholders. The strongest companies are often led by exceptional management teams that anticipate change, adapt to evolving economic and competitive environments, and continuously reinvest in their businesses to maintain their leadership positions.

Whether navigating recessions, inflation, geopolitical conflicts, technological disruption, or shifts in government policy, these businesses have repeatedly demonstrated their ability to innovate, evolve, and emerge stronger over time.

As long-term investors, our focus remains where it has always been:

• Identifying high-quality businesses
• Partnering with strong leadership teams
• Maintaining diversification
• Staying invested through periods of uncertainty

While elections may influence short-term sentiment, it is earnings growth, innovation, productivity, prudent capital allocation, and management execution that have historically driven long-term investment success.

For that reason, we continue to view the United States as a cornerstone of client portfolios and remain focused on the opportunities that lie ahead rather than the headlines of the day.

As always, if you have questions about your portfolio, financial plan, or the topics discussed in this note, please don’t hesitate to reach out.