Wall Street seems to be more concerned about the GOP’s chances in the midterm elections compared to everyday investors, and you can partly attribute that to insights from companies like Home Depot and McDonald’s, according to sources.
The prevailing belief — whether you’re checking out Kalshi, Polymarket, or even the chatter on financial TV and Reddit — suggests that Democrats will secure the House while the Senate remains pretty unpredictable. Even with some Democrats polling well in states like Texas and Michigan, it looks like the GOP might manage to maintain control of the Senate.
However, Wall Street’s higher-paid traders, who tend to do their research before making significant investments, are seeing greater risks. They’ve picked up on troubling signs in consumer-centered stocks, which appear to be struggling, potentially hinting at softening economic conditions in middle America and raising red flags about Trump’s working-class supporters.
True, Democrats are embracing fringe socialism with quirky candidates causing a stir—particularly in New York City, where figures like Mayor Zohran Mamdani are gaining traction. Still, that’s a tougher sell in places like Texas and Michigan, where Democrats have backed some unconventional candidates like Abdul El-Sayed.
On the surface, major stock indices such as Nasdaq, Dow, and S&P are reaching new highs. Plus, employment statistics and GDP appear strong. There are jobs, wages seem to be climbing, and even with the Iran situation driving up oil and gas prices, inflation isn’t spiraling out of control.
That’s the outlook from the optimistic crowd, at least. But when digging deeper into the numbers, the reality may not lean favorably toward the GOP.
Firstly, the headline numbers often hide the real economic situation. Joe Biden faced a peak inflation rate of 9%, while under President Trump, it ranged between 3.2% and 3.4%. But these figures only reflect the rate of change; prices are still rising, creating more financial strain on consumers.
Trump’s tariff policies have contributed to inflation rates remaining above the Federal Reserve’s 2% target. Fed Chair Kevin Warsh cannot afford to lower short-term rates without appearing weak, which could increase yields on important bonds like the 10-year Treasury that inform consumer loan rates.
Currently, the 10-year Treasury is feeling pressure from inflation and the need for capital to fuel AI infrastructure growth, prompting Treasury Secretary Scott Bessent to step in and buy Treasuries to keep yields down.
That’s just the tip of the iceberg. Larry McDonald from Bear Traps Report points to two charts that illustrate how the average consumer perceives the economy, contrasting starkly with investors chasing the AI boom pushing up major indices.
One key chart details Home Depot’s stock performance, a critical indicator of the middle-class housing market. The other looks at McDonald’s. Both have underperformed compared to the S&P over the last year, suggesting that working-class consumers are tightening their belts due to increasing prices and slow wage growth.
“These charts are painting an ugly picture for Trump and the Republicans,” McDonald noted. “These are consumer-driven stocks, not influenced by big tech companies that are boosting the indices.”
Of course, there are dissenting opinions. Bob Sloan from S3 Partners, which tracks stock interests, mentions that the negative outlook on companies like McDonald’s and Home Depot has eased slightly, with short interest dropping from 10.6% in July to 10% this week (I should mention, Bob is also my co-host on the Risk and Return Podcast).
Interestingly, McDonald’s recorded its highest short interest in a decade back in July, though it has since declined, indicating that bearish sentiment may be weakening. I think many Trump supporters still have ample reasons to rally for the GOP given the current rise of left-leaning Democrats.
Nonetheless, it appears that some of the sharpest minds on Wall Street are beginning to worry more about the costs of housing and fast food. It’s a situation that both the GOP and investors should certainly consider closely.
