Built to Last: America at 250 and the Road to November

Overview:

Few topics divide a room faster than politics. We recognize that any political commentary risks alienating one segment of our audience while exciting another. But our responsibility is to provide an unbiased perspective on the variables that matter for your portfolio and financial plan. November's midterm elections, now four months out, qualify as just that, since the outcome will shape the policy backdrop for 2027 and beyond.

This piece arrives during a meaningful week. The United States turns 250 on July 4th. A quarter millennium. The freedoms, the opportunities, the rule of law, the unrivaled entrepreneurial spirit, and the enviable standard of living that Americans enjoy are not accidents. They are the product of an experiment in self-governance that, despite its imperfections, has produced something genuinely extraordinary in human history. We celebrate this nation and are grateful for it. America’s long arc of resilience is worth keeping in mind as we enter a political season that may test our patience and perhaps our optimism. 

Diversify’s Take:

250 Years:

As our nation turns 250, let’s stop and reflect on what this great experiment has produced. The American story is not one of comfort, ease, or complacency. It is a story of grit and determination. A story of independent thinkers, immigrants, and founders who arrived on our shores with little and built relentlessly, convinced that hard work would pay off. That restless, entrepreneurial spirit is our nation's most valuable resource, and it has compounded at an astonishing rate. 

Americans have always taken risks, built new things, and changed the world. Consider what we invented or materially advanced. Surgical anesthesia. The telephone. The light bulb and the electric grid. The assembly line that put the country on wheels. The airplane, which later evolved to carry us to the moon and into space. Antibiotics that turned once-fatal infections into routine treatment. The polio vaccine that conquered a national scourge. The transistor, the microchip, the personal computer, and the internet that connected the planet. The smartphone. And now the vast frontier of artificial intelligence. 

That progress rests on a foundation that remains rare in human history: the rule of law, the protection of property and personal belief, a culture of ingenuity, the freedom to take risks, to fail, and to try again, and the deepest capital markets on earth, which turn ideas into investable opportunities. The results show up in the data. According to Andrew McAfee at MIT, over the past 50 years the United States has created 241 companies from scratch worth more than $10 billion. Europe has created just 14. The lesson is not simply that Americans possess remarkable talent. It is also that America is structurally advantaged: a singular ecosystem where innovation can scale with less friction, funded by a risk-taking culture that backs what others will not. 

None of this makes America perfect. It never has been, and our founding fathers never claimed it would be. But a nation that keeps inventing the future, widening opportunity, and getting back up has earned our immense gratitude, and that remains true regardless of who sits in the White House or which party is in power. America has always had problems, but we’ve always found a path forward. We have been through wars, depressions, recessions, pandemics, energy shocks, and market crashes. Each test has left the nation stronger than before. Let this Independence Day be a reminder of that resilience. Steel becomes strong only under heat and pressure, hammered and reforged until its impurities burn away. So it is with America. Adversity has not broken us. It has hardened us. At 250, that is worth celebrating. 

The Midterm Landscape: 

The current balance of power in Washington is narrower than it may appear. Republicans hold the House 218 to 212, with a few vacant seats still in play. In the Senate, the margin is more comfortable at 53 to 47 in favor of the GOP. Those races are summarized in the graphic below from Lazard.¹ 

Though at first glance it appears that the GOP may retain both chambers, a six-seat House majority is historically fragile, and the forces that typically drive midterm outcomes are not in the incumbent party’s favor. At the time of this writing, Polymarket puts Democrats’ odds of retaking the House at 84%.² Democrats need only a modest net gain to flip the chamber. Since 1960, the party controlling the White House has shed an average of 26 House seats in midterms. Exceptions are rare. The party in power has gained seats in a midterm only twice in the past six and a half decades, and both instances were tied to unique national events (1998 and 2002). 

The Senate is a different story. The map favors Republicans. Democrats are defending more vulnerable seats, and the GOP has legitimate pickup opportunities in at least two states (Georgia and Michigan). Flipping the Senate would require a near-perfect Democratic cycle, something most forecasters consider unlikely. A lot can change between now and November, but the most probable outcome is a divided Congress. 

Implications of a Divided Government: 

A Democrat-controlled House alongside a Republican Senate would represent a reset of the legislative environment. That would carry specific risks worth highlighting. 

Tax Policy: This matters most, in our view. The 2017 individual rate cuts were made permanent last year, so those are settled. What is not settled is the package of temporary provisions created alongside them, most of which expire after 2028, which is inside the window the next Congress will govern. Renewing those provisions requires legislation. A divided Congress turns that renewal into a genuine negotiation rather than a straight party-line vote. If those talks stall or fail, the result is effectively a passive tax increase that arrives not because anyone voted for it, but because no one could agree on how to prevent it. 

Regulatory Continuity: Some of the current regulatory posture has been shaped through executive action rather than legislation. That is largely insulated from a change in Congressional control. Where divided government bites is on new legislation, particularly anything that touches financial services, energy, or healthcare. Those agendas slow considerably if the two chambers are working from opposing playbooks.

Spending and the Debt Ceiling: A divided Congress has a track record of turning routine fiscal deadlines into drawn-out confrontations. Debt ceiling negotiations and the like tend to generate short bursts of market volatility, even though they do little to alter the fundamental economic trajectory.  

Investment Implications: 

Equity: 

As midterm campaigns intensify throughout the summer and fall and policy questions hang in the balance, equity volatility and the probability of drawdowns have historically risen. The chart below from BlackRock shows the pattern: since 1970, the S&P 500 has typically been flat and choppy in the months leading up to the midterms.³

However, reacting to that volatility seldom pays off. Once the political uncertainty fades into the rearview mirror, the market has typically resumed its ascent. Since 1938, the S&P 500 has risen in the 12 months following every single midterm election, regardless of which party held power. The pre-midterm jitters have historically been a good buying opportunity. 

A shift in the balance of power should not change that conclusion. Equities have historically navigated divided government well. When neither party controls the full legislative agenda, the range of policy outcomes narrows, and that reduced uncertainty has often been a tailwind for equities. Elections may set the mood for a few months, but earnings set the direction for quarters and years. We position around the latter. 

Fixed Income: 

Kevin Warsh now leads the Federal Reserve (Fed), and his early moves signal real change. At his first meeting in June, he announced five task forces to reexamine the core of how the Fed operates: communication frequency, the balance sheet, the data it relies on, productivity and jobs, and the inflation framework itself. Warsh is also dismantling forward guidance, having shortened the policy statement, stripped out the easing bias, and declined to submit his own dot in the June FOMC projections. The takeaway for investors is a less communicative Fed, and less communication tends to mean more rate volatility. 

On rates, the June meeting left the target policy rate at 3.50-3.75% for the fourth consecutive meeting. The updated dot plot told the more important story. The median year-end 2026 projection climbed to 3.8% from 3.4% in March, signaling that the FOMC now sees one hike as likely. The rates market is now pricing in one 25bps hike by October, with no further movement through 2027. We think the more likely outcome is for the Fed to sit on its hands. Either way, the window for rate cuts appears closed for 2026, and the bar to reopen it is now higher. 

Politics adds another layer. If divided government reduces the odds of new fiscal stimulus, that may be modestly constructive for bonds, since less deficit spending means a smaller inflationary impulse. The potential expiration of the temporary tax provisions cuts the same way, lifting revenue and narrowing the deficit. The offsetting risk is extension. Renewing those cuts would widen the deficit and add to Treasury supply, which could pressure yields. The net effect is uncertain until a legislative path becomes clearer. 

Our posture remains the same: shorter-than-benchmark duration, high credit quality, and a strong preference for owning individual bonds directly rather than through commingled funds. That preference matters more in a world of a quieter Fed and persistent rate volatility. Individual bonds give our clients a defined maturity schedule and known cash flows, which in our opinion, is exactly the discipline this environment rewards. 

Alternative Investments: 

One virtue of a well-constructed alternative allocation is that it can operate partially outside the influence of the political cycle. Private real estate cash flows, private equity secondaries, critical infrastructure assets, and asset-backed loans typically do not swing with Congressional vote counts as much as the public market does. Their returns are driven more by fundamentals than by headlines. 

That insulation is partial, not total. Rates still matter, and the Fed backdrop discussed above bears on private markets just as it does public ones. Policy matters too. Tax-advantaged strategies such as Qualified Opportunity Zones and 1031 exchanges depend on provisions that legislation can change. But those are narrower, slower-moving risks than the broad market volatility a contested election may produce. For clients with an appropriate time horizon and a sufficient illiquidity tolerance, that partial insulation may prove valuable heading into a period of elevated uncertainty. 

Summary:

The most probable outcome of this fall’s midterm elections is a divided Congress, with Democrats favored to retake the House and Republicans likely to hold the Senate. That would not be the catastrophe that partisan narratives on either side suggest. The consequences are real but contained: tax policy may become a negotiation, new legislation may slow, and routine fiscal deadlines may turn into standoffs. Expect noise. But remember, noise is not the same as risk to a long-term plan. 

The track record is unambiguous. Historically, the S&P 500 has been positive in every 12-month period following a midterm, across every combination of political power. Politics may move markets in the short run. But profits move them over time, and profits are what we position around. We stay invested in quality equities and treat volatility as a chance to add exposure. We hold high-quality individual bonds built for a changing Fed. And for some clients, we own alternatives whose valuations may be more tied to fundamentals than vote counts. 

This great nation has endured all varieties of adversity, and each time it has emerged stronger. 250 years in, the American experiment still rewards those who stay disciplined and keep their eye on the long arc. We intend to do exactly that on your behalf. We appreciate the trust you place in us. 

Wishing you a happy and safe Independence Day. Happy 250th, America.      

David Wrigley

Chief Investment Officer

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1. Lazard Asset Management, as of June 2026 

2. Polymarket is a prediction market in which projections reflect the collective wagers of market participants and should not be treated as polling data or professional forecasting.

3. BlackRock, as of June 2026. Past performance of the S&P 500 is not indicative of future results. Index returns do not reflect fees, expenses, or transaction costs associated with an actual investment portfolio.  

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The information contained herein is the opinion of the author as of the date the market update was written and is subject to change without notice as markets change, and new information is available. While Diversify utilizes sources deemed to be reliable, we have not independently verified the content. Investors should carefully consider any changes based on this market commentary and discuss their individual circumstances with their trusted advisors. Past performance is not indicative of future results. This communication is for informational purposes only and should not be construed as investment advice or a recommendation.