The Bigger Picture: November 2026

Tuesday 3 November could prove to be one of the more consequential days in this year’s investment calendar. In the afternoon, the Reserve Bank hands down its latest cash rate decision. Across the Pacific, Americans vote in midterm elections that will decide control of Congress. 

Of the two, the US vote may be the bigger deal for investors. Historically, the 12 months after US midterms have been the strongest stretch within the four-year presidential cycle. With the US representing 73% of the MSCI World Index, that raises the potentially valuable question: will the pattern repeat this time? 

Wall Street’s Most Reliable Pattern & Why It May Not Hold 

Experienced investors have long focused on the historical patterns that have proven profitable in the past. The midterm pattern is among the most persuasive.  

Since 1950, the S&P 500 has risen in the 12 months following every one of the 19 midterm elections, by an average of 15%. That’s well ahead of the market’s typical return in the other years of the presidential cycle. 

The midterm year itself is usually the rough part of the cycle. On average, the market has suffered a peak-to-trough fall of 17.5% before the votes were counted, then relaxed once the uncertainty lifted. 

It’s tempting to read that as an approaching green light for markets.  

But first, there are three caveats worth being aware of: 

Firstly, this pattern has not always held. 

Before 1950 it was far less reliable. US equities fell in the year after several midterms in that period, including 1902, 1906, 1930 and 1938. 

Secondly, this year skipped the typical major pre-election sell-off.  

The usual script has been a bruising midterm year followed by a sharp post-election rebound. This time, the S&P 500 remains close to its all-time high of 7,819, set on 6 October.  

Post-war midterm years that arrived in similarly robust shape still delivered positive returns, but more subdued ones: an average gain of 11.8%, versus 18.4% for those that arrived after a major sell-off. 

Thirdly, valuations are currently stretched by most measures. 

The Shiller CAPE ratio, which divides the S&P 500 by the average inflation-adjusted earnings of the past ten years, sits at 41. The dot-com peak was 44.  

So, the post-election rally, if it arrives, will start from a relatively high base. 

While positive returns may well be around the corner, there are more reasons than usual for short-term caution. Either way, this historical pattern, whilst remarkably accurate, isn’t a reason to bet the house on a single outcome. 

The pattern may hold or it may break. A solid plan works either way. 

The Professionals Are Bullish. Individual Investors Aren’t. 

Beneath the headline indices, a noteworthy shift is at play: fewer stocks have been doing the heavy lifting.  

Only 47% of S&P 500 companies are trading above their 200-day moving average, a common gauge of whether a stock is in an uptrend. That’s unusually narrow participation for an index trading near record highs.  

In Australia, the picture is weaker still: barely one in four stocks in the All Ordinaries clear the same bar. 

When an index depends on so few names, it is more vulnerable than usual to any stumble among its largest members. 

Professional and individual investors are reading this backdrop very differently.  

Bank of America’s October Global Fund Manager Survey found a net 37% of fund managers are overweight technology, the most since August 2020. At the same time, their cash holdings remain below the 4% level that BofA treats as a contrarian sell signal.  

In other words, institutional positioning is now so stretched that it has historically been a warning sign in its own right.  

Even so, fund managers aren’t complacent: a disorderly rise in bond yields tops their list of tail risks — as will be discussed at our November conference. 

Individual investors are warier. The share of bears in the AAII Sentiment Survey is 14 percentage points above its long-term average. 

The fault line running through both camps is the same question: is the AI spending boom a market maker or a market breaker? 

AI is unquestionably the theme dominating global markets this year.  

The four largest US hyperscalers are spending more than US$700 billion in 2026, with more planned for next year. On current trajectories, AI capital expenditure will reach 3.1% of US GDP by 2027, more than double the peak of the dot-com investment boom. 

Will that spending keep climbing, or will the US economy eventually lose a meaningful slice of that 3.1%?  

No one knows, so we can expect markets to overreact, in both directions, to any data point that hints at the answer. 

For investors, the more controllable issue is concentration risk.  

The ten largest stocks now make up 39% of the S&P 500, and a significant portion of most global ETFs. So, owning ‘the market’ has evolved into a rather focused bet on the success of the AI rollout.  

Equal-weight US ETFs such as QUS, which give each company the same weighting regardless of its size, are a prudent way to dilute that risk. 

Home Truths: When 5.5% Is Really Negative 

At home, the picture is darkening.  

Unemployment rose to 4.7% in September, its highest level since late 2021, while the odds of another RBA rate rise in November have risen to around 50%.  

Households are adapting in revealing ways.  

Our investigation into the lipstick effect, the tendency to swap big-ticket spending for smaller indulgences when budgets tighten, found clear signs of that trade-down underway. Younger Australians in particular are cutting back on major purchases while still making room for small treats. 

That shift is favouring defensive sectors such as consumer staples, utilities, healthcare and infrastructure.  

Higher rates are also rewriting the domestic income playbook.  

For example, a 5.5% term deposit sounds attractive until you account for tax. At a 30% marginal rate plus the 2% Medicare levy, it returns 3.7% after tax. That’s below August’s monthly CPI reading of 4.0%, which implies a negative return in real terms. 

Thus, the challenge for income investors has become holding onto a positive real yield after tax. 

You Don’t Need to Predict the Future 

In a market this narrow and noisy, a robust, repeatable process adds far more value than getting any forecast correct. Invest each month, rebalance by rule rather than mood, and diversify with the knowledge that Australia accounts for only 2% of global equities. 

Moreover, be ready for others to be less in control of their emotions than you plan to be. This week will deliver two results that investors will rush to interpret. Some will act on the first headline. Those who know what they own and why they own it won’t need to.  

Patience is an investment decision like any other.

Disclaimer: This article is prepared by Simon Turner. It is for educational purposes only. While all reasonable care has been taken by the author in the preparation of this information, the author and InvestmentMarkets (Aust) Pty. Ltd. as publisher take no responsibility for any actions taken based on information contained herein or for any errors or omissions within it. Interested parties should seek independent professional advice prior to acting on any information presented. Please note past performance is not a reliable indicator of future performance.