Wall Street Grows Anxious About Policy Ambiguity as Midterm Elections Approach

Wall Street’s Latest Buzzword: The Big MAC Trade

Photographer: Al Drago/Bloomberg

Wall Street is known for its fondness for catchy acronyms that sum up investment trends—think FANG, FOMO/YOLO, and TACO. Now, Ed Clissold, chief US strategist at Ned Davis Research, is introducing a new term: the Big MAC trade, short for "Big Midterms Are Coming." This phrase is meant to highlight what he believes will be the dominant narrative of 2026: the sweeping policy changes and uncertainty leading up to and following the upcoming Congressional elections.

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President Donald Trump has kicked off the year with a series of policy-related statements, mostly delivered via social media and lacking legislative backing. These moves are widely seen as efforts to boost the Republican party’s prospects in the November elections, with a particular focus on what many are calling America’s "affordability crisis."

These policy pronouncements have already had a significant impact on financial markets. For example, Trump’s call for a 10% cap on credit card interest rates—far below the current average—sent banking stocks tumbling. Defense companies saw their shares drop after he demanded they stop paying dividends and reinvest in production. The administration’s latest challenge to the Federal Reserve’s independence also rattled Wall Street.

According to Clissold, Trump’s emphasis on affordability ahead of the midterms has led to a series of interventions targeting oil prices, mortgage rates, credit card rates, and the federal funds rate. The greatest risks, he notes, are concentrated in the financial sector, especially in areas related to mortgages, credit cards, and interest rates. Clissold describes Big MAC as more of a prevailing theme than a specific investment strategy, warning that sector-specific policy actions are a key risk as the elections approach. However, he admits that managing this risk is not straightforward.

Tom Essaye, founder of Sevens Report, adds that unpredictable government policy is another major concern for markets in 2026. He points out that the market’s muted response to many of Trump’s recent policy maneuvers may be encouraging the administration to take even bolder steps.

“We need to keep a close eye on this,” Essaye wrote, “because the market’s lack of reaction to policy uncertainty seems to be emboldening the administration.”

Market Volatility and Investor Anxiety

Essaye warns that, eventually, this uncertainty will impact the markets, and while it hasn’t happened yet, the risk is growing. Although Trump’s policy announcements have mostly caused only brief market swings, they have heightened anxiety among investors and strategists. The sheer volume of market-moving comments from the president makes it challenging to stick to any particular trading plan.

Michael O’Rourke, chief market strategist at Jonestrading Institutional Services LLC, notes, “No one wants to wake up and discover that a stock or sector they own is suddenly in the crosshairs, with shares dropping five or ten percent.”

With 42 weeks remaining before the US midterm elections, O’Rourke points out that there is ample time for the administration to introduce new sector-specific risks that could disrupt the market, potentially triggering a selloff in an already highly valued market.

“If, by the end of this week or next, another industry comes under fire from the executive branch, investors may decide that high valuations aren’t worth the risk,” he said.

Clissold believes a new acronym is needed after the “TACO” trade—originally coined to describe Trump’s habit of threatening tariffs but rarely following through. Even without Trump’s unconventional approach, midterm years are typically marked by below-average equity returns due to policy uncertainty. Historically, the party in control of the White House often struggles in Congressional elections.

Midterm Years and Market Performance

Data from CFRA Research shows that the S&P 500 typically experiences an average intra-year decline of 18% during midterm years. When one party controls both Congress and the presidency but faces the risk of losing that grip, the market’s average annual gain since 1945 drops to just 3.8%, with losses occurring nearly half the time, according to CFRA’s chief investment strategist Sam Stovall.

Political developments and unexpected events have also driven realized volatility in individual stocks to nearly 22 points above the main index’s volatility.

Dennis Debusschere, president and chief market strategist at 22V Research LLC, observes, “Most of the market impact from headlines is being felt at the company or sector level, while the overall macro influence on the S&P 500 remains relatively low by historical standards.”

Investor Strategies Amid Political Uncertainty

Some investors are adopting a more defensive stance. JPMorgan’s trading desk has suggested that US stocks may lag in the near term due to pressure on the Federal Reserve. Similarly, Scotiabank strategists believe that global equities could outperform the S&P 500 in 2026, as “intensified legal attacks on Powell” may increase the risk premium required to hold US stocks.

Kimberly Forrest, chief investment officer at Bokeh Capital Partners LLC, recommends that investors take a longer-term view that extends beyond the current political cycle. She personally looks three to five years ahead when making investment decisions.

Forrest’s firm holds shares in Exxon Mobil Corp., which recently drew criticism from Trump after labeling Venezuela “uninvestable.” Forrest remains unfazed by Exxon’s decision, viewing the stock as a long-term investment. However, she acknowledges that the current environment is challenging for funds with shorter time horizons.

Her advice for those navigating these turbulent times: “Good luck.”

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