Opening Scene: Why Off-Year Elections Make Markets Sweat
Listen up, because we're about to navigate one of the market's favorite pastimes: freaking out over Election Day. Sure, Tuesday's off-year elections won't decide who sits in the Oval Office, but that won't stop traders from treating it like the financial equivalent of waiting for biopsy results. Virginia's picking a governor, Texas is filling a House seat, and California voters are deciding whether politicians get to redraw district lines—thrilling stuff that could shift just enough policy levers to make your portfolio wobble.
Think of elections like that one friend who shows up to dinner and insists on "keeping things interesting" by arguing about politics. Nobody asked for the drama, but here we are, watching the VIX tick higher and wondering if we should have gone to cash last week. Spoiler alert: you probably shouldn't have, but we'll get to that.
Volatility Build-Up: The Fear Gauge Is Awake
What's Happening:
The VIX—Wall Street's favorite "oh crap" meter—has been creeping upward as we approach Tuesday. As of Friday, October 31, the VIX closed at 17.44, up from 16.91 the day before and significantly below the historical pre-election median of 18.4. That's actually pretty calm for election week, suggesting either traders are zen masters this cycle or they're too exhausted from this year's earlier tariff tantrums and Fed pivot dramas to work up a proper panic.
Historically, markets become jumpy 4–8 weeks before election day, with the VIX typically rising in the lead-up to the event before collapsing after the results are announced, once uncertainty dissipates. The pattern is consistent: uncertainty equals volatility, resolution equals relief. In the three most recent presidential elections (2016, 2020, 2024), the VIX dropped by 10–37% in the days immediately after the results were known—the most significant drops occurring when outcomes were contested or unexpected.
Quick hit: the bottom line (skip the blah blah)
Fear is expensive right now—option premiums are elevated, meaning if you're buying protection, you're paying a premium for everyone else's anxiety. If you're selling volatility (you brave, foolish soul), remember that past performance doesn't guarantee Tuesday won't surprise us. The fact that the VIX is relatively subdued compared to historical election norms suggests the market isn't pricing in major drama—but as we learned in 2000 (the Florida recount, anyone?), elections have a way of producing unexpected plot twists.
Policy Expectation Shifts: Guessing the Rules of Tomorrow’s Game
What’s Happening:
Even though Tuesday’s ballot won’t bump who’s in the White House, it sure will steer the policy ship. Here’s what we’re watching:
Virginia’s Gubernatorial Race: Democrat Abigail Spanberger versus Republican Winsome Earle‑Sears — a showdown that will tell us whether the Old Dominion stays purple or veers redder. A first-ever female governor is guaranteed, and with all three statewide offices plus the General Assembly in play, this is a major early referendum on the first year of the Trump administration.
New Jersey’s Gubernatorial Race: Democrat Mikie Sherrill versus Republican Jack Ciattarelli in what’s become a razor-thin duel (latest Emerson poll: Sherrill 49%, Ciattarelli 48%). New Jersey hasn’t elected the same party three times in a row for governor since 1961, and the fact that Trump narrowed the gap in 2024 (Harris by ~6 points vs Biden’s ~16 in 2020) has jolted this race from background noise to headline game. Incumbent Democrat Phil Murphy is term-limited.
New York City Mayoral Race: The socialist-tinged Democrat Zohran Mamdani holds a commanding lead (Emerson final poll: Mamdani 50%, Andrew Cuomo 25%, Curtis Sliwa 21%) over former governor Andrew Cuomo (running independent) and Republican Sliwa. Mamdani’s agenda — rent freezes, universal childcare, and free buses funded by taxing the wealthy — has energized younger voters and foreshadows a major ideological shift in the largest U.S. city. Early voting turnout is five times higher than in 2021, suggesting serious engagement.
Texas’s 18th Congressional District Special Election: CORRECTION – This seat was vacated by Sylvester Turner’s death on March 5, 2025, not by Sheila Jackson Lee. (Jackson Lee died in July 2024; Turner was elected in November 2024 and died after less than two months in office.) Sixteen candidates are vying for this historically Democratic Houston district, pretty much guaranteeing a runoff in early 2026 between the top two finishers. The district has been without representation for over seven months. Leading names include Amanda Edwards (D), Jolanda Jones (D), Christian Menefee (D), and Carmen Montiel (R). With Republicans holding just a 219-213 House majority (and three vacancies), this special election could punch above its weight in close votes — though the likely runoff means the seat may sit vacant into early 2026.
California’s Proposition 50: MAJOR CORRECTION – This does the OPPOSITE of what was stated originally. Proposition 50 would temporarily suspend the independent California Citizens Redistricting Commission and allow the Democratic-controlled legislature to draw partisan congressional maps for the 2026-2030 elections. This is a direct riposte to Texas Republicans’ mid-decade gerrymandering that wiped out five Democratic seats. The proposed Democratic map would flip five GOP seats to a Democratic advantage, potentially reducing California’s GOP delegation from 9 seats to as few as 4 out of 52 total. This is the most expensive ballot-measure campaign in recent California memory (over $166 million raised) with significant national implications for control of the House in 2026. The commission would resume redistricting after the 2030 census.
Additional Key Races:
Virginia State Legislative Elections: All 140 seats in both chambers are up for grabs, with 23 battleground House districts marked. Democrats currently hold both chambers but face a possible incursion by Republicans.
Virginia Attorney General: Republican incumbent Jason Miyares faces Democratic challenger Jay Jones in a race with implications for voting rights and election administration.
Major Mayoral Races: Minneapolis (Mayor Jacob Frey seeking reelection in a 15-candidate field), Seattle (Mayor Bruce Harrell vs Katie Wilson), Albuquerque, Detroit, Miami, Atlanta, Boston, and 12 state capitals.
24 Additional Statewide Ballot Measures: Across six states (California, Colorado, Maine, New York, Texas, Washington), including Maine’s voter-ID requirement, Texas’s constitutional ban on non-citizen voting (Prop 16), and various tax/spending measures.
Markets are already pricing in potential tax tweaks, regulatory shifts, tariff policy changes, and sector-specific implications depending on who wins what. Research from Bank of America shows Financials, Consumer Staples, and Utilities typically outperform in the September-October pre-election window (returns of 1.42%, 0.51%, and 0.30% respectively), while Energy and Materials spike post-election (gains of 4.35% and 4.77% respectively in November-December). The historical pattern: defensive sectors lead into uncertainty, then cyclicals explode once the dust settles.
Quick hit: the bottom line (skip the blah blah)
The market is a giant prediction machine that hates uncertainty. Currently, traders are placing bets on policy outcomes, much like they would on horse races at the track.
If Democrats sweep Virginia/New Jersey, blocking Prop 50, expect relief rallies in renewable energy, healthcare, and infrastructure: as the “Trump backlash” narrative gains momentum heading into 2026.
If Republicans gain ground across all three key races: Look for financials and traditional energy to pop on expectations of deregulation and fossil-fuel support — with 2026 midterms looking friendlier for the GOP.
If Mamdani wins big in NYC: Progressive-agenda stocks (affordable-housing REITs, childcare providers, renewables) may move up, while luxury real estate and tax-sensitive stocks could get hit by “billionaire exodus” fears.
If Prop 50 passes: Immediate impact for California-focused political-action firms and redistricting consultants, medium-term implications for 2026 House control, and likely copycat efforts in other Democratic states.
But remember — the market often guesses wrong. That’s why the real money is made after the results are in and reality starts to bite.
“If Democrats hold, progressive sectors pop; if Republicans sweep, cyclicals and financials surge. Either way, somebody’s getting rich and somebody’s holding the bag.”
Sector Rotations: Where the Smart Money Is (Allegedly) Moving
What’s Happening:
Even when the overall market doesn’t roar, individual sectors can whipsaw big time around elections. Research from S&P Global found that cross-sector dispersion (how far sectors diverge) spikes during presidential-election Novembers — meaning sector-picking skill is like being able to ride a bull while blindfolded. Defensive sectors like Utilities, Staples, and Healthcare hold up well pre-vote; once the outcome’s clear, rotation floods into cyclicals: Industrials, Financials, Materials, Energy.
For this cycle, watch:
Financials: A Republican bump in NJ/VA + continued GOP House control = hope for deregulation that lifts banks and insurers. Keep an eye on regional banks with Virginia/New Jersey exposure.
Clean Energy / Utilities: Democratic wins in VA/NJ would turbocharge ESG plays and renewables; GOP sweeps could let the sector hang out to dry.
Healthcare: State-level shifts in Medicaid expansion or ACA implementation matter — especially in Virginia and New Jersey. A progressive win in NYC could signal a broader move toward single-payer advocacy.
Real Estate: NYC’s rent-control agenda under Mamdani could squeeze multifamily REITs with exposure in NYC. Proposition 50 in California could hit developers and redraw the map of winners in redistricting.
Infrastructure: Bipartisan support remains strong, but state-level control is crucial for a successful rollout. Both NJ gubernatorial candidates emphasize the Gateway Tunnel project — a boon for transportation and construction sectors.
Media/Political Consulting: Win or lose, Prop 50’s precedent could spark a redistricting arms race nationwide, boosting political consulting, data analytics, and mapping-tech firms.
Quick hit: the bottom line (skip the blah blah)
Sector rotation is Wall Street’s version of musical chairs — when the music stops (results drop), everyone scrambles for the best seat. The smart play isn’t so much predicting who wins; it’s positioning for the rotation after the envelope opens. Historical patterns suggest the first 1-2 weeks post-election see the most aggressive rebalancing.
“Rotation alert: which sector is your radar on? Because come Wednesday morning, the game board gets reshuffled.”
Macro Fundamentals Still Rule: Don’t Forget the Boring Stuff
What’s Happening:
Here’s the cold, hard truth your crystal-ball gazing might ignore: elections matter way less than you think for long-term market direction. Research from Edward Jones and others shows that fundamentals (economic growth, corporate earnings, interest rates, inflation) are what actually move markets over time — not just which party wins what. The S&P 500 has posted positive returns in approximately 75% of election years since 1960. By year-end after elections, stocks have rallied 69 %–79 % of the time (depending on whether you ditch outliers like 2000 and 2008).
Currently, the macroeconomic backdrop appears solid: the Federal Reserve has recently cut rates to around 3.75%-4.00%, inflation is cooling to approximately 3.0%, unemployment remains low (despite some patchy data due to recent government shutdowns), and corporate earnings have held up — despite tech volatility. The S&P 500 closed Friday near 6,840, up almost 17% year-to-date and sitting on its sixth straight monthly gain.
Quick hit: the bottom line (skip the blah blah)
Elections are the shiny distraction while the real engine hums in the background: Is the economy growing? Are companies making money? Are rates going up or down? The answer to those questions matters infinitely more than whether Virginia picks a Democrat governor or New York City gets a progressive mayor.
So yes, watch the election — but don’t let it hijack your investment thesis. If your portfolio is built on fundamentals, Tuesday’s results are background noise.
“Yes, these election matter — but don’t ignore the real engine: growth, inflation, and rates. Everything else is just the sideshow.”
Post-Election Relief (or Disappointment) Rally: The “Settle-Down” Trade
What’s Happening:
Once the election uncertainty clears, markets historically settle and often rally pretty quickly. Data from the CME Group show that by December following an election, stocks have rallied 69% of the time (73% if you exclude the 2000 mess, and 79% if you also exclude 2008). The VIX (aka the “fear index”) typically drops sharply post-election — recent cycles saw 10%-20% declines in the first 1-3 days after results.
The pattern is simple: before the election, investors hold cash and wait; after the election, cash flows back in because knowing beats not knowing. Strategists at BlackRock call this the “post-election reinvestment phase” — where cyclicals (Financials, Industrials, Consumer Discretionary) tend to lead as optimism returns.
For November 4, 2025 specifically:
Three major races (VA, NJ, NYC) with clear winners by Wednesday morning should quickly reduce uncertainty.
Proposition 50 results may take longer to finalize, but they will provide clarity on 2026 House control expectations.
Texas’s 18th District is likely heading to a runoff, meaning the seat’s uncertainty lingers — but the market impact is minimal unless Republicans shock everyone.
Multiple mayoral and state legislative results provide an early indication of the 2026 midterm environment.
Quick hit: the bottom line (skip the blah blah)
The 1-2 trading days after results hit are where the real opportunity lies — especially if you’ve been sitting idle on cash. Historically, markets reward those who buy uncertainty and sell clarity — though catching that move perfectly is about as easy as catching a falling knife while blindfolded.
The relief rally tends to favor risk-on trades: cyclicals over defensives, small caps over the big boys, and any assets beaten down by pre-election jitters.
“Keep an eye on Wednesday and Thursday — the ‘settle-down’ move is where smart money separates from scared money.”
Tail Risks & Surprise Outcomes: When the Script Gets Torn Up
What’s Happening:
Surprises are where the biggest market moves happen — and where your portfolio either gets a boost or takes the hit. The 2000 election (37-day Florida recount) and other unexpected outcomes triggered massive spikes in volatility. When elections yield contested results or “tail outcomes,” the VIX can stay elevated for weeks, and correlations across assets fall apart as panic spreads.
For Tuesday, the tail-risk possibilities include:
New Jersey upset: Ciattarelli pulls off a narrow win despite Democratic advantages — would signal major Trump coattails and rattle 2026 midterm expectations. Latest polls show this remains a genuine toss-up (~49-48 Sherrill).
NYC stunner: Cuomo mounts a comeback against Mamdani via an older-voter surge and Sliwa defector support — a move that would mark progressive overreach and an establishment bounce-back. Though Mamdani’s lead is 15-25 points, early-voting older voters are edging the risk.
California Prop 50 fails: Despite massive Democratic spending ($122M in support vs. $44M opposed), voters reject the partisan redistricting takeover — a significant blow to Democratic 2026 House strategy and to Governor Gavin Newsom’s 2028 ambitions.
Virginia triple surprise: Republicans flip the governorship and a legislative chamber while losing the AG race — causing divided-government chaos and complicating the 2026 narrative.
Texas’s 18th shocks: Republican Carmen Montiel finishes in the top two in a D+29 Biden district — though highly unlikely, would spark panic in the Democratic caucus about Hispanic voter shifts.
Multiple recounts: Close margins in NJ governor, several Virginia legislative districts, and Prop 50 trigger extended uncertainty — VIX stays elevated rather than dumping Wednesday.
None of these are high-probability events (except maybe the NJ upset or Prop 50 failure), but if they flick on, expect volatility way out of proportion to the actual policy impact. Tail risk is expensive to hedge (option premiums are elevated) but cheap to ignore — until it barrels into your portfolio.
Quick hit: the bottom line (skip the blah blah)
Surprises hurt the most when you’re overleveraged and under-prepared. If you’re holding concentrated bets or high margins, Tuesday’s potential for chaos should make you nervous. If you’re diversified and liquid, you can afford to watch the fireworks.
“Risk management is the difference between ‘ouch, that stings’ and ‘oh God, I’m ruined.’ Choose wisely.”
Wrapping Up: Keep Calm and Trade On
Here’s the bottom line: Tuesday’s off-year elections will inject a dose of uncertainty into markets, but unless something truly extraordinary happens (NJ upset, Prop 50 failure, NYC stunner), the impact will be short-lived and largely sector-specific.
What to expect:
VIX ticks higher on Monday and Tuesday as final polls tighten in NJ and Prop 50 uncertainty peaks.
Wednesday morning volatility as results firm up (VA and NYC should clear early; NJ may hang; Prop 50 could drag).
Sector rotation Wednesday-Thursday, with cyclicals likely outperforming defensives post-election.
A relief rally by Thursday or Friday as uncertainty clears and cash floods back in.
The big picture: Those sitting on cash waiting for “clarity” will likely regret it by Thursday. The pattern holds: buy the uncertainty, sell the clarity. But timing matters—and tail risks are real.
What actually matters more:
The Fed’s next move (December meeting looms large)
Q4 earnings season (starts mid-November)
Potential government shutdown drama (appropriations expire November 17)
The Trump administration’s policy execution (tariffs, immigration, and regulation)
Elections are theater; fundamentals are reality. The Fed’s rate path, corporate earnings, and economic growth matter infinitely more than who wins Virginia’s governorship or whether NYC gets a democratic-socialist mayor.
So watch the election, enjoy the drama, position for the relief rally — and then get back to what actually matters: making money in a market that doesn’t care about your political opinions.
But what can you actually DO about the proclaimed ‘AI bubble’? Billionaires know an alternative…
Sure, if you held your stocks since the dotcom bubble, you would’ve been up—eventually. But three years after the dot-com bust the S&P 500 was still far down from its peak. So, how else can you invest when almost every market is tied to stocks?
Lo and behold, billionaires have an alternative way to diversify: allocate to a physical asset class that outpaced the S&P by 15% from 1995 to 2025, with almost no correlation to equities. It’s part of a massive global market, long leveraged by the ultra-wealthy (Bezos, Gates, Rockefellers etc).
Contemporary and post-war art.
Masterworks lets you invest in multimillion-dollar artworks featuring legends like Banksy, Basquiat, and Picasso—without needing millions. Over 70,000 members have together invested more than $1.2 billion across over 500 artworks. So far, 23 sales have delivered net annualized returns like 17.6%, 17.8%, and 21.5%.*
Want access?
Investing involves risk. Past performance not indicative of future returns. Reg A disclosures at masterworks.com/cd
Critical Updates for Market Impact:
New info since the original analysis:
The NYC early-voting surge (five times 2021 levels) suggests turnout could smash expectations — potentially impacting polling accuracy and increasing volatility if the results surprise.
NJ race tightened dramatically in the final week — what was Sherrill +9 in early October is now essentially deadlocked. Major implications.
Prop 50 opposition gaining late momentum — Charles Munger Jr. donated $33 M to defeat it; GOP megadonors coordinating late push too.
The Trump DOJ announced election monitors for CA and NJ — a move that could spark legal challenges and extended uncertainty if the results are close.
*Barack Obama endorsed Mamdani (NYC) and Sherrill (NJ) in the final days — signals Democrats treating these pretty seriously as Trump-bellwether contests.
Record early voting across all three states — Virginia started early Sept 19; NJ and NYC saw massive weekend turnout.
As always: stay liquid, stay diversified, and for the love of all that’s holy, don’t bet the farm on a single outcome. Because in markets as in life, the only certainty is that somebody’s forecast is about to get wrecked.
See you on the other side — may your portfolio be green and your stress levels manageable.
Disclaimer
Tracking the Trade is for entertainment and educational purposes only—not investment advice. We are not licensed financial advisors; just a rag-tag crew with opinions, a keyboard, and an unhealthy obsession with market data. All elections can (and will) produce outcomes no one predicted, often at the worst possible moment for your portfolio. Past election patterns aren’t guarantees, and any resemblance to actual profitable trading strategies is purely coincidental. If you make or lose money based on this newsletter, that’s on you. Consult a real financial professional before making investment decisions. Trade responsibly, manage your risk, and remember: the only poll that matters is the one conducted by the market on Wednesday morning.