Hey traders,
I called a sweep. I did not call Kansas.
That state hadn’t sent a Democrat to the Senate in close to a hundred years, and last night it did. Texas flipped a Senate seat and the governor’s mansion in the same evening. I stayed up for all of it and I’m running on about three hours of sleep, so forgive me if this one’s blunt.
Here’s what a margin that size means in Washington.
A thin majority governs carefully. A mandate doesn’t. The incoming majority is going to feel entitled to everything on its list, and Hakeem Jeffries will pass whatever he wants out of the House without a single Republican vote. The Senate still has to clear it, but every seat that flipped last night makes that easier than it was on Monday.
So let’s talk about what moves.
Golden Dome first. The administration asked for $17.5 billion in the fiscal 2027 budget. Appropriators matched $400 million. The rest was supposed to ride in a second reconciliation bill, and I’ll say plainly what I told Garrett: nix the reconciliation stuff. It’s gone. I was on the Hill the last two weeks and the Republican offices I talked to had already conceded. A lot of those members are retiring. Nobody’s going out in a blaze of glory for a bill that won’t survive January. Expect them to coast.
That realigns the defense trade but it doesn’t kill it. RTX and AeroVironment are replacement stories. The contracts are signed, the backlog is real, and they keep filling it under whoever chairs the committee. Those names went on sale today and I still like them. The money that’s at risk is the layer on top, the new-start programs, and that’s where I’m waiting for the dust to settle before I touch anything.
Prisons are a different story. They’re in a world of hurt, and I don’t see a near-term floor.
Healthcare and clean energy did what I said they’d do on Monday. HCA, Oscar, First Solar, Enphase, Sunrun. The coverage trade and the affordability trade both have a seat at the December 11th funding table now, and that’s before the new Congress even sits. Those stay aligned.
Now the one I’m watching closest, and it’s the one nobody else is talking about today.
USA Rare Earth’s primary mine sits outside El Paso. It was moving forward with real support from the state. Abbott was one of its biggest champions. So was the land commissioner. Both were ousted last night, and the new governor ran on slowing down exactly this kind of project. USAR and the Greenland holding vehicle both got hammered this morning, and I expect the mineral names to keep getting hammered for a while.
Here’s the part the market hasn’t priced. There’s a White House requirement coming in January that puts domestic rare earth content rules on specific military programs. That didn’t come out of Congress. It doesn’t need Congress. It doesn’t die on January 4th. The permits on most of these projects are already issued, and I don’t see them getting pulled. So you’ve got a sector taking a beating on state politics with a federal catalyst sitting eight weeks out. Andrew and I have been talking through the options structure for that, looking past January, and it’s one of the better setups I’ve seen this year.
The tell on all of it is the president. He’s vowed to keep the veto pen out. If I’m sitting in that office this morning, I’m thinking about playing nicer in the sandbox to keep this from getting worse two years from now. That’s me. It may not be him. But watch whether he locks everything up or starts signing a few things, because that single decision decides how far the healthcare and green names run.
A few of what I laid out today don’t fire until mid-November or January. They sit inside a cycle that’s paid the same way for 40 years: the index rises after a midterm, and the sectors the result touched are where the outsized money gets made.
And Mark created Cycle 11 to let you play that cycle.
Get some sleep. I’m going to try.
Frank