Gridlock and Growth Support Stocks Into 2027, but Concentration Calls for Diversifying

Remy Blaire: [unclear: “He”] says the months after a midterm election are almost always good for stocks. In fact, since World War II, the S&P 500 has posted gains in the nine months following every single midterm. But with Treasury yields back above the 5.1% level, inflation running hot and Nvidia reeling from a leadership shakeup, investors are wondering if that playbook still holds.

Joining us to break down how post-election gridlock, the Fed’s next move, as well as elevated bond yields shape portfolios is Kieran Osborne, CIO and partner at Mission Wealth. Happy Friday, Kieran, and thank you so much for joining us. It has been quite the volatility for markets, so let’s zoom out. While stocks have risen nine months after every midterm since World War II, between Washington gridlock as well as AI volatility, what do you expect to see in terms of [unclear: “concentration cap gains”] as we head into year end?

Kieran Osborne: Yeah, no, it’s a good question. I think right now, you know, obviously we’re experiencing a lot of volatility. I think the market is just sort of coming to grips with a lot of moving pieces right now: midterms, Nvidia obviously hitting the headlines, and some concerns there around AI as well and the capacity issues.

I think if we take a big step back and think about the next 12 months and think about the economy, the economy is doing really well. If you look at economic data surprises, they have consistently come in above expectations broadly for this year. And in fact, we’re at levels not seen since 2023 in terms of economic data outpacing expectations.

You mentioned the post-midterm election period. It tends to be a very good period for stocks. In fact, I’ll give you one more data point. In the last 100 years, with the exception of the Great Depression, the S&P 500 has posted positive returns in the 12 months after midterms. And I think the results of the midterms really lend themselves to gridlock in Washington, which takes some of the policy risk off the table. The reality is that any material policy changes that require congressional approval are just not going to happen, most likely, over the next couple of years. And that takes away an element of uncertainty, which is a positive for the stock market.

One other stat I’ll give you is, in an environment where the economy is [unclear: “producing positive returns, that’s very positive growth”], which is certainly our base case, the S&P 500 produces positive returns about 90% of the time over that 12-month period. So we’re not looking into a recession anytime soon. I think historic precedent is really on our side as equity investors. So looking forward over the next 12 months, I would be constructive on the outlook for the stock market. We are, but we do anticipate ongoing volatility along the way. The Nvidia headlines this week, I think, bring a focus to how concentrated the market is, and how headline risk around some of these Mag 7 names can actually drive some increased volatility for the entire market as a whole. But again, taking a step back, I think the underlying economic fundamentals are sound. Earnings growth continues to be sound, and I think that should act as a natural tailwind in the months ahead.

Remy Blaire: And of course, one type of policy that we’re also monitoring is monetary policy. Given the fact that we got producer prices out this morning, as well as that hotter-than-expected CPI earlier this week, we’ve also been hearing from plenty of Fed officials. So I understand that despite this week’s hawkish Fed talk, you expect just one more hike before a pause. Can you walk us through why you think Fed Chair Warsh, as well as higher yields, actually signal the Fed could almost be done?

Kieran Osborne: Yeah. Our best case, the expectation, is one more rate hike in December, and then we believe the Fed will pause and enter a sort of wait-and-see mode. I think, from, sorry, Fed Chair Warsh’s recent press conference, probably the most important takeaway came quite late in the press conference, and maybe some people would have checked out at that point. But he had mentioned, and this point has been reiterated by Williams today, actually, that the economy is not running too hot. Effectively saying, hey, we can experience above-trend economic growth, which we are right now, marginally above long-term trend economic growth. But that, in the Fed’s view, is not causing inflationary pressures, and that alone is not going to cause the Fed to raise rates on a go-forward basis.

I think the other aspect that has been discussed previously is that the market has done part of the Fed’s job for them. With the 10-year now trading up over 5.1%, and we’ve obviously seen a pretty significant run-up in the 10-year this year, that has led to tighter financial conditions. And reiterating what Warsh told us in the Fed press conference, they’re waiting to see the economic implications of the prior rate hike, and they’ll likely raise one more time this year, and then they’re likely to pause again to really assess what the ultimate economic implications are.

Yes, we did get hotter-than-anticipated CPI data for October. I don’t know that the Fed is going to react to just one data point. They would want to see a trend moving [unclear: “all a way”], or higher, and maybe a trend in long-term inflation expectations becoming unanchored. But right now, we’re not seeing that.

Remy Blaire: Well, [unclear: “we’ve got a billion shares”]. And finally, Kieran, before I let you go, I do want to get your take on artificial intelligence, in particular Nvidia. In afternoon trade we are looking at shares down well over 3%, and this comes on the heels of yesterday’s decline as well. Right now the shares are clinging to that 160 level. But Jensen Huang’s exit at Nvidia shows how fast single-stock risk can hit. So without making a call on the stock itself, how do you help investors diversify massive concentrated gains?

Kieran Osborne: Yeah, no, it’s a great question. It’s a topic that we’ve been discussing with our clients for some time, even ahead of 2026, where a lot of clients out there and investors, maybe they are over their skis with respect to concentration in some of these large mega-cap, tech-oriented names, which we all know have come under pressure and underperformed this year. That really highlights the risk of being overly concentrated in certain names.

So we have actively looked to trim positions back, leading into 2026, where clients did have concentrated stock exposures, in favor of more broadly diversified allocations, even diversifying away from broad-based, say, S&P 500 exposure, which in and of itself, even just investing in the index, the index itself is more concentrated than ever. If you look at either earnings or market cap, percentages are approaching and around that 40% level for the top 10 names in the index. So the S&P 500 is not as diversified as it once was. And so we have been favoring allocations to international stocks, emerging market stocks, fixed income-oriented allocations, as well as less liquid private investments such as private equity, direct real estate, as well as private credit, which we have high conviction in, in many of those asset categories. They also provide that nice diversification benefit, provide access to different return streams that maybe zig when the market zags, and help protect in these time periods where we are experiencing outsized volatility.

Remy Blaire: And Kieran, finally, before I let you go, we are counting down the weeks until the end of 2026. So at Mission Wealth, how are you looking at 2027?

Kieran Osborne: Yeah, we’re constructive on the outlook moving forward. I mentioned earlier, it is historically a period, post-midterm election, with a backdrop of solid economic growth, that tends to be a good time to be a stock investor. So we’re not bearish on the outlook for stocks, albeit we expect moderation in returns on a go-forward basis and ongoing volatility, for all of the reasons I mentioned earlier, mainly the concentration issue of the stock market. But again, we’re not bearish on the outlook for stocks. We just expect mid to high single-digit expected returns on a go-forward basis. If you strip out the effect of multiple expansion in the recent time period, and the outsized returns that we’ve experienced within the US stock market, it implies about high single-digit expected returns, which I think is fair on a go-forward basis.

We like the bond market too. We think the bond market offers an attractive entry point with yields where they are right now. We’re seeing a really asymmetric expected return profile on a go-forward basis, where even if interest rates move higher from here, the chances are that you end up over a 12-month period with still positive returns out of the bond market, just because the current yield, or entry point, on the bond investment is so high and relatively attractive compared to the yields that we’ve experienced over recent years. And then lastly, to the extent that you can invest in less liquid asset classes, private equity, direct credit, as well as real estate and infrastructure, we do have high conviction on those asset classes on a go-forward basis to produce high single digits, with potential double-digit return expectations.

Remy Blaire: Well, Kieran, really appreciate your time. Thank you so much for joining us on this Friday afternoon, and thank you so much for sharing your insights as well as your perspective. Have a great weekend.

Kieran Osborne: Have a great weekend. Thank you.