Positioning Portfolios for the Midterm Elections

• (1:00) - Will Markets Move Higher After Midterm Elections?
• (4:50) - Breaking Down The AI Investment Trade In Its Current State
• (7:10) - Understanding The Impact of Midterm Elections On Finance, Defense and Energy
• (14:15) - What Types of Change Should Investors Be Aware of Heading Into Elections?
• (17:25) - State Street SPDR Portfolio S&P 500 ETF & Nasdaq 100 ETF: SPYM & QNDX
• (22:45) - Episode Roundup: SOXX, XLKI, JEPQ, XAR, ITA, XLF
•                 Podcast@Zacks.com

In this episode of ETF Spotlight, I speak with Matt Bartolini, Global Head of Research at State Street Global Advisors, about portfolio positioning strategies to navigate the 2026 midterm election cycle, which could impact the economy, tax policy, government spending, regulations, and the markets.

During midterm election years, markets typically experience higher volatility due to policy uncertainty. This year, markets have been unusually volatile due to geopolitical uncertainty as well, yet stocks have continued to perform well despite these challenges. The State Street SPDR Portfolio S&P 500 ETF SPYM is up almost 13% year-to-date.

AI remains a strategic priority for both parties, but according to a recent poll, 58% of U.S. voters oppose the construction of new data centers. At the same time, calls for AI regulation are growing, while President Trump opposes such measures. NVIDIA NVDA CEO Jensen Huang has also dismissed the need for new AI regulations.

With AI-related technology receiving structural support but the likelihood of regulatory scrutiny increasing, investors could consider ETFs such as the iShares Semiconductor ETF SOXX or the State Street SPDR Portfolio Nasdaq 100 ETF QNDX.

For financials and banks, we could see policy continuity, as many financial regulatory powers remain with agencies outside Congress.

The Trump administration has requested a historic $1.5 trillion defense budget for fiscal year 2027. There are also reports that the war in the Middle East has led to a munitions shortfall.

Increased defense spending could boost revenue for companies held by the iShares U.S. Aerospace & Defense ETF ITA and the State Street SPDR S&P Aerospace & Defense ETF XAR.

The energy sector is the best-performing sector year to date, with gains of almost 40%. The outlook for the broader energy sector from here depends on how long the conflict continues, which is difficult to predict. A divided government after the midterms could lead to greater policy support for renewable energy.

At the same time, the midterm elections are unlikely to fundamentally change the macro regime, as tariffs, geopolitics, deficits, and fiscal policy remain largely driven by forces beyond Congress. The easing of political uncertainty after the election could provide a boost to equities.

Tune in to the podcast to learn more.

Make sure to be on the lookout for the next edition of the ETF Spotlight and remember to subscribe! If you have any comments or questions, please email podcast@zacks.com.

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This article originally published on Zacks Investment Research (zacks.com).

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