As the 2026 midterm elections approach, Wall Street is pivoting toward a new trading theme dubbed "Big MAC"—"Big Midterms Are Coming"—to navigate escalating policy uncertainty.
Recent waves of "quasi-policy" statements issued by Trump via social media aim to bolster the Republican Party's position ahead of November's elections. These moves have already rattled markets: bank stocks tumbled after being ordered to cap credit card interest rates at 10%, while defense contractors suffered hits as the president demanded a pause on dividends and redirected investments into production. Meanwhile, the administration's persistent attacks on Federal Reserve independence have unsettled the financial sector.
This "chaos" at the policy level is now viewed as a core risk for the 2026 market, forcing investors to reassess valuation logic in what had been a "perfectly priced" environment. Although major indices have remained relatively calm, volatility at the individual stock and sector level has surged significantly, with institutions like JPMorgan warning that U.S. stocks may underperform in the near term given mounting pressure on the Fed.
With 42 weeks remaining until the midterms, the unpredictability of governance-by-tweet is making it increasingly difficult to stick with traditional trading strategies. Market participants fear the White House could introduce sector-specific risks at any moment, potentially upsetting the current market equilibrium.
The "Big MAC" trade is emerging. Wall Street has long favored acronyms to encapsulate trading narratives. Following the popularity of the "TACO" trade—which stood for "Trump Always Caves/Optimistically"—Ned Davis Research chief U.S. strategist Ed Clissold introduced the "Big MAC" concept, signaling that "Big Midterms Are Coming." Clissold believes this will be the dominant market theme of 2026, centered on the impact of pre-election policymaking and its aftermath.
Clissold notes that Trump's focus on America's "affordability problems" has directly spurred a series of actions targeting oil prices, mortgage rates, credit card rates, and the federal funds rate. Such politically-driven policy interventions could have far-reaching consequences for equity markets.
For risk-conscious investors, "Big MAC" serves more as a macro theme than a specific trading strategy. Clissold emphasized in a report that sector-specific policy actions represent the primary risk as the midterms approach. Among these, the financial sector faces the most obvious dangers, with mortgages, credit cards, and the broader interest rate environment all in the policy crosshairs.
Policy "chaos" and stock-specific shocks. Tom Essaye, founder of Sevens Report, argues that governmental policy "chaos" constitutes an additional risk for the 2026 market. He worries that markets have been too complacent in response to Trump's attempts to rewrite economic and business rules, and that this lack of reaction may be emboldening the administration. Essaye warns that while a tipping point hasn't yet been reached, uncertainty will eventually take a toll on markets.
Although policies announced via social media often cause only brief market ripples, the fear they generate is spreading among investors and strategists. Michael O’Rourke, chief market strategist at Jonestrading Institutional Services LLC, says the sheer volume of Trump's remarks and their broad impact across Wall Street make it difficult to adhere to any single trading strategy.
"You don't want to wake up every day and find that the stock or sector you own is the target of the day, opening down 5% or 10%," O’Rourke said by phone. He noted that with 42 weeks until the election, the White House has ample time to introduce other sector-specific risks, which could trigger selling in richly valued markets. If another sector comes under administrative fire, investors may exit due to stretched valuations.
Historical pullback patterns in midterm election years. Historical data also supports a cautious stance during midterm election years. According to CFRA Research, the S&P 500 has historically experienced an average intra-year pullback of 18% during midterm years. Sam Stovall, chief investment strategist at CFRA, pointed out that since 1945, when one party controls both the White House and Congress but risks losing that control, the market's average annual gain has been just 3.8%, with losses occurring nearly half the time.
While the macroeconomic policy impact on the S&P 500 as a whole remains low by historical standards, its effect on individual stocks has been unusually pronounced. Dennis Debusschere, president and chief market strategist at 22V Research LLC, observed that most of the headline impact occurs at the company or industry level. Influenced by political and idiosyncratic events, the realized volatility of individual stocks has been nearly 22 percentage points higher than the same metric for major indices.
Wall Street's defensive strategies and long-term perspective. In response to heightened political risks, some investors have already adopted a more cautious outlook. JPMorgan's trading desk indicated that U.S. stocks may underperform in the near term due to pressure on the Fed. Similarly, Scotiabank strategists noted on Tuesday that global equities might once again outperform the S&P 500 in 2026, as "escalating legal attacks" on Fed Chair Powell could raise the risk premium investors demand to hold U.S. stocks.
To navigate this additional political risk, Kimberly Forrest, chief investment officer at Bokeh Capital Partners LLC, advises investors to extend their time horizon beyond the current political cycle, looking three to five years into the future.
Forrest revealed that her firm holds shares in Exxon Mobil Corp. Although the company angered Trump last week by labeling Venezuela "un-investable," Forrest said she ignores such short-term noise and views the stock as a long-term holding. For funds with shorter trading horizons, she admitted the current environment is exceptionally challenging, offering brief advice:
"Good luck."
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