Why Markets May Be Stronger Than Investors Think: Insights from Denise Chisholm - November 4, 2026

A divided regime has historically been a strong setup for equities

History offers a notable pattern worth keeping in mind. According to Denise, the year following the midterms has tended to be the strongest year for the stock market within the four-year presidential cycle, with every post-midterm calendar year historically finishing higher. She attributed that pattern less to election-related spending and more to the decline in uncertainty that often follows the vote. Since 1980, roughly 80% of midterm elections have resulted in a shift in control, creating what she described as a divided regime, where Congress and the president are from different parties. Denise noted that this has historically been the strongest setup for equities. While she cautioned that a one-day market move does not predict future performance, she said the broader historical pattern made the initial market reaction unsurprising.

Visible risks are often discounted well in advance

Looking beyond election outcomes, Denise argued that markets often price in risks long before they materialize. She pointed to health-care reform efforts in the mid-1990s, which many investors believed would significantly pressure industry profitability. Health-care stocks underperformed ahead of those reforms but subsequently outperformed for more than five years. She also noted that one of the largest government stimulus programs in U.S. history, aimed at supporting green energy following the 2020 election, coincided with a peak in the sector's relative performance. In her view, the more visible a potential tailwind or headwind becomes, the greater the chance the market has already incorporated it into prices. That perspective informs her view on current concerns around data-center development. Rather than assuming those concerns will automatically translate into weaker long-term outcomes, she suggested investors consider how much of the risk may already be reflected in valuations.

Technology valuations may offer a more favourable risk-reward profile

For Denise, valuations provide an important lens for assessing whether concerns have already been priced into stock prices. She noted that semiconductor stocks, software companies and the technology sector more broadly currently sit in the bottom quartile of their historical relative valuation ranges. Historically, those starting points have tended to improve the odds of outperformance over the following 12 months. That pattern has occurred even when investor concerns ultimately proved justified. Denise noted that in some historical cases, capital spending and earnings declined, yet stocks still delivered relative outperformance. While she emphasized that this is not a call on near-term market timing, she said current valuations may skew the downside to be more limited while creating the potential for more favourable upside than many investors expect, even under more challenging scenarios.

Capital spending and compute are not necessarily a linear story

One of the market's key concerns is whether a blue-wave outcome could create additional constraints on data-center development. Denise acknowledged reports of cancelled projects and reduced capital-spending plans but argued that investors should be careful about assuming a straightforward relationship between capital spending and computing capacity. To illustrate the point, she compared the situation to the evolution of shale production in the energy sector. Even without a significant increase in drilling activity, productivity improved dramatically over time. She suggested a similar dynamic could occur in technology, where productivity gains allow companies to generate more computing capacity from the capital already being deployed. More broadly, Denise noted that technological innovation has often made scarce and expensive resources more abundant over time. Because of that, she said she is reluctant to assume that reduced capital spending would necessarily have a negative impact on economic growth. Historically, periods of slower capital spending have often been followed by accelerating GDP growth.

The labour market may be setting up for a stronger 2027

Beyond technology and capital spending, Denise sees encouraging signs emerging from the labour market. She pointed to several indicators that she believes suggest improving conditions heading into 2027, including a Conference Board survey showing jobs becoming easier to find, stronger ADP employment data and employment readings in both the ISM manufacturing and services surveys remaining above 50. Together, she said, these indicators point toward a healthier labour market, which she views as a key driver of the U.S. economy. One common concern is that stronger employment growth could reignite inflation. Denise said the historical data she has analyzed does not support that conclusion. Instead, she argued that periods of increasing labour demand have often been accompanied by an increase in labour supply as discouraged workers re-enter the workforce. She also said her analysis showed little to no correlation between payroll growth and wage growth across multiple historical measures. In her view, the availability of workers on the sidelines may provide more room for job growth without creating the inflation pressures many investors fear. Her base case is that stronger employment and income growth would gradually help households better absorb the higher prices that emerged during and after the pandemic.

Where she sees opportunities and risks across sectors

Taken together, those views help shape how Denise thinks about opportunities across the market. She maintained that fundamentals, earnings expectations and starting valuations generally have a greater influence on sector performance than policy developments alone. For that reason, she cautioned against making investment decisions based solely on political outcomes. Areas she viewed more favourably tended to have a cyclical tilt. These included technology, metals and mining, as well as select industrial and consumer discretionary companies that she described as trading at depressed valuations while maintaining improving fundamentals. She also highlighted housing-related companies as an area of interest. Denise noted that relative price-to-book valuations in parts of the housing sector have historically been associated with limited downside and improved long-term return potential. She further argued that time has historically been a more significant driver of home purchases than either home prices or mortgage rates. On the defensive side of the market, she expressed less enthusiasm toward consumer staples and utilities. She also said the risk-reward profile for energy stocks remains unfavourable in her view, citing strong existing profitability and the potential volatility that could accompany any future easing of geopolitical conflicts.

Conclusion: Fundamentals over politics