Blue Crush
From Texas to Washington
Texas told you how big the blue wave was. Democrat James Talarico won a U.S. Senate seat there, and Gina Hinojosa unseated Governor Greg Abbott. Texas hadn’t elected a Democratic governor since Ann Richards won in 1990. Democrats also flipped Senate seats in Kansas and South Carolina. Early Wednesday race calls pointed to Democratic control of both chambers, with the party flipping more than two dozen House seats and at least seven Senate seats. Democrats were also on track to hold a majority of governorships after flipping Georgia, Iowa, Ohio and Texas.
The Iran War Cost Republicans The Midterms
The price of fuel helps explain the scale of the defeat. Regular gasoline averaged $4.15 a gallon nationally on Monday, up 38% from $3.02 a year earlier. In Maine, where Democrat Troy Jackson won a Senate seat, home heating oil averaged $6.04 a gallon in the week of October 26, up 86% from $3.25 in the comparable week last year. The war with Iran disrupted oil flows through the Strait of Hormuz. In the AP Voter Poll, roughly half of voters said the cost of living was crucial to their vote for Congress. Roughly half said the same of government corruption.
California offered a limit to the mandate. At 12:27 a.m. Eastern Wednesday, KQED’s early tally showed 56.4% of counted votes against Proposition 40, the proposed one-time wealth tax on billionaires. The count was still underway.
Why Trump Sacrificed The Midterms
Two of Trump’s longest-held political concerns have been America’s trade deficit and the threat of nuclear proliferation. In a 1985 interview with Ron Rosenbaum, Donald Trump worried about nuclear technology spreading to more countries. In a 1987 ABC interview, he argued that America was protecting oil tankers bound for Japan through the Persian Gulf while Japanese exports strained the U.S. economy. This term, he used tariffs on metals, backed an $8.9 billion federal investment in Intel and said preventing an Iranian bomb was one of the aims of the war. Our reading is that he gave those priorities more weight than the immediate political costs. Republican candidates went into Tuesday carrying the cost of decisions made in Washington.
Trump likely expected the war to end much sooner. On March 2, he said his administration had projected four to five weeks for the operation. The conflict was still unresolved on Election Day. It exposed limits on what American military power could achieve and on the country’s willingness to absorb casualties and economic costs in a long war overseas. The silver lining is that the United States learned those limits in the Persian Gulf, at a lower cost than it likely would have paid in a direct war with Russia or China.
The Data Center Backlash Goes Local
Nasdaq-100 futures fell as much as 2.4% overnight, and S&P 500 futures fell as much as 1.4%. As we write, both have recovered their overnight losses and are fractionally higher in premarket trading. The reversal supports our view that the market’s initial fears about the Democrats’ sweep were overdone. Local ballots showed where individual projects could run into trouble. In Sunbury, Ohio, about 78% of voters backed a data center restriction in unofficial returns. The city had previously announced a $2 billion campus planned by Amazon. The local vote raises a question about what can get built there and when.
Hinojosa proposed a temporary pause in Texas until lawmakers could take up new rules. Her terms include union labor, a local say, public terms and an end to subsidies. She also wants operators to show that households won’t pay more for electricity or water and to protect community water supplies. The next regular session opens January 12. That puts the legislative debate on a calendar, with individual project dates still tied to permits, water and power.
If Texas makes new sites harder to build, developers can take the next project to another state. A different site still needs power and permits, so the move can push back equipment orders even if national investment holds up.
Wall St Engine pointed out that some of the largest operators have already offered to cover the cost of new power and transmission.
Gina Hinojosa may not be as bad for Texas data centers as it looks.
Under the March Ratepayer Protection Pledge, participants committed to cover new generation and grid upgrades for their sites and negotiate rates that cover dedicated capacity even when they use less than planned. Microsoft separately pledged to pay local property taxes in full. A project that pays its power and water costs and adds net tax revenue gives local officials a reason to approve it. Texas law already calls for an initial transmission screening fee of at least $100,000 for covered large loads. For a developer, the bigger checks come with power and water commitments, construction labor and financing while a site waits to open. Those terms can change when a supplier ships equipment and when the project starts earning revenue.
What Political Uncertainty Could Put on Sale
Serenity was early to spot bottlenecks in the AI buildout. In January he singled out AXT (AXTI), a supplier of indium phosphide for optical components. AXT shares more than quadrupled in the first half of the year. His point on election night was that federal support for AI crosses party lines, even as state policy can slow individual projects.
AI is bipartisan national security priority
The spending plans show the scale of demand. Alphabet projected $195–205 billion in 2026 capital expenditures and expects a significant increase in 2027. Meta Platforms projected $135–145 billion, including principal payments on finance leases. Both figures cover companywide spending. A delayed site can still push a shipment and its cash receipt into a later quarter.
A business that needs one permit, one jurisdiction or one site to come through on time has a lot riding on each decision. We’ll look for businesses that can keep filling orders across several customers and locations. If political worries push those shares down while orders and delivery dates hold, we may get a chance to buy selectively.
The same approach applies in biotech. Political worries can pull down a stock while the company stays on track to report trial results. That’s the kind of opportunity we’ll look for in our next trades.
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