Get Ready For The BIGGEST Stock Market RESET Of Your Lifetime!

Summary

Felix Nikolas Prehn argues that the market may be entering a major leadership rotation after the midterm result, rather than facing a broad collapse. He says divided government can support stocks by limiting major policy changes and keeping the investment environment more predictable. However, he emphasizes that historical patterns are not guarantees and that market gains can vary significantly across sectors.

Market Reaction and Historical Patterns

After Democrats won both chambers of Congress, the Dow rose about 3%, or roughly 1,500 points—described as its best day of the year. The S&P 500 gained about 1.5–1.6%, and the Nasdaq rose 1.4%.

Prehn cites seven previous midterms since 1954 in which a Republican president lost Congress to Democrats. In all seven cases, the S&P 500 was higher a year later. Average returns were approximately:

• +2% after one month
• +10% after three months
• +17% after six months
• +15% after one year

He also cites JPMorgan data showing positive S&P 500 returns one year after every midterm election since 1950, with an average gain of about 15%. For elections since 1990, he gives average returns of +5% after three months, +11% after six months, +12% after nine months, and +14% after one year.

He cautions that these are historical averages, not forecasts. As examples of disruptions to the pattern, he notes that in 1974 the market was down about 10% ten months after the election before finishing a year later up 18%, amid high oil prices and persistent inflation. He also mentions the 1987 crash.

Sector Rotation and Portfolio Implications

Prehn stresses that index performance can conceal sharp differences among sectors. On the day he analyzes, the gap between the best- and worst-performing sectors was nearly 9 percentage points.

Energy was especially weak: the sector fell more than 6% relative to the market, while the XLE energy ETF fell just under 5%. Brent crude dropped about 8% in a day. He attributes the oil move to changing expectations around US policy and conflict in the Middle East.

Industrials, technology, and utilities were also down that day. Consumer-related sectors—including consumer discretionary, consumer staples, stores and restaurants—as well as financials, real estate, and healthcare, performed better than the index in his comparison.

Citing JPMorgan’s historical sector data for the year after midterms, he says the S&P 500 gained nearly 15%, while consumer staples fell 8%, energy fell 5%, and real estate fell 6%. Utilities gained 8%. His point is that sector selection and diversification can materially affect results even when the overall index rises.

He says he positioned ahead of the election for lower energy exposure and higher exposure to most other areas, but does not present this as a universal allocation recommendation.

Semiconductors, AI Infrastructure, and Large Technology Companies

Prehn says semiconductor stocks have fallen below the 200-day moving average, a widely watched trend indicator. He shows the SMH semiconductor ETF and compares the current decline with earlier episodes, including one in early 2022 when it traded around $84, versus about $498 in the comparison he gives.

He says previous dips below the moving average have sometimes presented buying opportunities, but explicitly says he is not recommending an immediate purchase and later says he would not rush to buy the sector. He may buy semiconductors again eventually, but “not quite yet.” He expects the market to adjust to slower or more prolonged growth in chip demand, rather than assuming that Nvidia and semiconductor stocks will rise indefinitely.

He says Microsoft, Amazon, and Alphabet/Google may benefit from already owning large data centers and having access to power, particularly if electricity constraints slow new data-center construction. He cites Wells Fargo’s estimate that Texas accounts for 27% of planned US data-center capacity and discusses proposed moratoria or limits on new data centers in Texas and other states.

For the day discussed, he gives approximate gains of 6% for Microsoft, 6% for Amazon, 3% for Alphabet, and 1% for Meta. He argues that constraints on new infrastructure could benefit established cloud-platform owners while weighing on chip suppliers and data-center developers.

Prehn cautions against companies that chase fashionable trends, noting that some infrastructure firms had previously been involved in cryptocurrency mining. He discusses CoreWeave, Nebius, and “Iris” (the last name may be mistranscribed). He says chip orders could be spread over a longer period, slowing supplier growth. He also says cloud services are not an area where he would invest his own money, though he sometimes trades CoreWeave.

Risk Management, Gold, and Other Macro Factors

Prehn warns against concentrating a portfolio in AI or semiconductor stocks. Using the distress of a highly concentrated investor as an example, he says poor sleep, constant portfolio checking, and persistent anxiety can indicate that an investor has taken on too much risk.

He recommends assessing risk at the company and sector level, including whether firms have enough cash to cover interest costs. He describes some AI-infrastructure firms as “zombie companies,” citing an example with debt at 3.7 times company value and about $3 billion in cash, which he says could eventually run out. He urges caution with such companies.

Gold is described as near its lowest price in roughly a year after forced selling related to margin calls. Prehn says it rose about 3% and 1.7% over the most recent two days on relatively strong volume. He sees the rebound as constructive and hopes gold continues trading sideways, which he believes could set up a stronger breakout. These are his views, not a guaranteed outlook.

He explains that when leveraged investors face margin calls, brokers may require additional cash or sell assets. Investors may sell liquid holdings—including assets that had been rising, such as gold—to meet those demands.

A chart he discusses claims that over the previous 50 years, inflation increased sixfold, Treasury bills eightfold, and the S&P 500 277-fold. He uses this to argue for being an investor, while stressing that investing wisely matters.

He also flags several upcoming macro and policy considerations:

• US government funding was due to end on December 11.
• He says the Federal Reserve could raise rates in December, with the likelihood depending partly on whether oil prices remain high.
• He notes year-end congressional deadlines.

Framework and Explicit Cautions

Prehn’s stated framework includes comparing sector performance with the broad index, rather than looking only at absolute returns, to see where money is moving. He tracks sector leadership and laggards using an 11-sector framework.

He also recommends using the 200-day moving average as one trend indicator, but not treating a break below it as an automatic buy signal. He advises checking company balance sheets, debt, cash, and ability to pay interest—especially among AI-infrastructure and other high-growth companies.

His cautions include avoiding overconcentration, managing risk according to a plan, and not assuming historical election patterns guarantee future performance. He says he is not telling viewers to buy SMH and advises against rushing into semiconductor stocks. His comments on gold and other sectors are expressed as personal views, not certainties.

Disclosures and Promotional References

Prehn says he does not accept sponsorship or support. He does not give a broad “not financial advice” disclaimer, but repeatedly says he cannot predict outcomes with certainty and advises investing or trading according to a plan.

He promotes a free research report at felixfriends.org/boom, a live webinar at greatpivot.org, and a trial of the Winston app. He says the webinar is scheduled for Saturday, November 7, with no recording.

Presenter and Sources

Presenter: Felix Nikolas Prehn, who identifies himself as an economist, former investment banker, and founder of the Pin Institute.

Sources and tools mentioned: JPMorgan market intelligence, Wells Fargo, Commerzbank, the Winston app, and a chart credited to Peter Malukas. He also refers to an unidentified chart and social-media post.