You Ain’t Seen Nothing Yet with Daniel Clifton

Midterm Sweep Sets Up a Local Data Center Fight

The midterm sweep was a demand for moderation after almost two decades of 2% growth, not a leftward turn. The policy fight that matters most for markets is now local, where local votes and state tax increases are stopping data center projects faster than Washington can help. The market's sharp reaction to the Texas result showed how much of the AI trade is tied to state-level politics. Clifton expects Washington to open federal land and a more populist presidential election in 2028, while health care and oil remain his favored policy-driven trades.

Takeaways

• Midterms were a vote for moderation. Daniel Clifton says the Democrats who won Senate seats in red states are not Sanders Democrats. Voters have removed the party in power in 10 of 11 federal elections since the financial crisis, and households would be $5.6tn richer had growth stayed at 3%.
• Local opposition is killing data centers. Clifton says 40 referendums went against the industry and voters recalled three commissioners who approved a Meta project. Virginia's $600m tax increase made Blackstone pull its largest project and Amazon cancel four zoned sites. Texas flipped with Greg Abbott out.
• Texas result hit chips, then market rallied. The Nasdaq fell 5% and NVIDIA 10% after the Texas result, then rallied on the idea that a clean Democratic win meant no contested election. 20 of 25 semis are down 10% or more, and Elon Musk's paper losses reached $110bn.
• Midterm seasonality favors equities. Clifton notes the S&P 500 has not fallen in the twelve months after a midterm since 1938, with an average gain of 14.8%. Six months after a midterm, average returns are 16.5% under Democrats and 10.2% under Republicans.
• Health care outperforms in midterm years. This is the 12th of the last 14 midterm years in which health care outperforms by about 10%. Clifton expects the Democrats' 50 drug price cram downs a year to become Medicaid changes, with Pfizer and Eli Lilly lobbying for that outcome.
• Oil stays higher for longer. Clifton is higher-for-longer on oil because the Strait of Hormuz, at 18m barrels a day, remains hostage to the IRGC. The IRGC believes regime change came to Texas before Tehran and will accept economic suffocation rather than a deal.
• Debt ceiling threatens 100% expensing. Clifton expects Democrats to use the debt ceiling to attack 100% expensing. He expects Trump to open federal land for data centers as a national security matter, which would counter local blocks. Non-AI companies like Kimberly-Clark are lobbying on energy permitting and R&D tax incentives.