A Political Rebound. Investment Profile at a 25-Year Low

The midterms have changed expectations in Washington and on Wall Street. Tax uncertainty and the costs of disrupted trade will take longer to resolve.

For five consecutive midterms, the United States went into the election with an October Investment Profile score of 12 out of 12. In 2026, it went in at 9.5. That is the lowest monthly reading since March 2001, and the lowest October reading in a midterm year since 1994.

My November assessment raises the overall U.S. Political Risk Rating from 71 to 74. Investment Profile stays at 9.5.

That is the part of the recovery I would watch most closely. Several political conditions look better in my assessment, but the concerns behind the investment downgrade remain. For a company deciding where to commit capital, or an investor deciding how much to pay for an American asset, those concerns have consequences beyond the election result.

The Wall Street Journal’s post-election report describes a rally and investor optimism about greater checks on presidential power. Its headline raises the prospect of a change in the market regime. WSJ, “The Blue Wave Sets Off a Potential Regime Change in Markets”

I can see why investors would reassess their positions. Expectations can change as soon as a result becomes clear. It takes longer to settle a disputed freight invoice, restore dependable shipping or convince a foreign investor that the tax treatment of U.S. income will remain stable. The election may improve the prospect of dealing with those problems. We still have to see them dealt with.

The historical series used here ends in October 2026. November’s scores are my assessment, recorded separately and excluded from the historical market tests. Higher ICRG points indicate lower assessed risk. Investment Profile measures investment-related political conditions, rather than the volume of investment spending or capital inflows. ICRG methodology

Where the three points come from

The U.S. total was 78 before the 2022 midterms. It was 71 before this year’s vote. November’s 74 restores three of those seven lost points, leaving the total four points below its October 2022 level.

Internal Conflict improves by one point in my assessment. Government Stability, External Conflict, Democratic Accountability and Bureaucracy Quality each improve by half a point. Within Government Stability, the change is in Popular Support. Government Unity and Legislative Strength are unchanged.

I would be careful about reading more into those changes than they contain. The higher total records improvements in particular assessments. It does not show that the election caused every one of them, or that the administration has acquired more legislative strength.

Investment Profile tells a different part of the story. Its 2.5-point decline accounts for roughly 36% of the net deterioration between October 2022 and October 2026. It contributes nothing to November’s recovery.

The recent midterm record shows how unusual the present position is:

Midterm year	October Investment Profile, out of 12
1994	7.0
1998	10.0
2002	11.5
2006	12.0
2010	12.0
2014	12.0
2018	12.0
2022	12.0
2026	9.5

Those are October snapshots. The score did fall between elections, including in 2008 and 2023. It would be wrong to describe the five successive maximum midterm readings as an uninterrupted twenty-year run.

The latest decline has been sustained. Investment Profile fell from 12 in February 2025 to 11.5 in March, 11 in April and 10.5 in May. It fell again to 10 in November 2025 and to 9.5 in July 2026. It stayed there through October and remains there in my November assessment.

The three November subcomponents are Contract Viability at 3 out of 4, Profits Repatriation at 3, and Payment Delays at 3.5. The reasons for the two most recent downgrades bring their relevance to business into focus.

The tax proposal was withdrawn. The uncertainty remained.

The November 2025 downgrade to Profits Repatriation, C2, reflected continuing concern about tax-policy uncertainty. The Section 899 proposal in the One Big Beautiful Bill debate was an important part of that concern.

The House proposal contemplated higher taxes, including withholding on covered income, for certain foreign persons associated with countries imposing taxes considered discriminatory by the United States. For an affected investor, that could change the income retained from a U.S. investment even if the underlying business performed exactly as expected. The Congressional Research Service set out the proposal and its possible investment effects in June 2025. CRS, June 9, 2025

Section 899 was removed from the Senate version of the bill in June, as Treasury’s June 28 G7 statement confirms. The November downgrade reflected uncertainty after its removal. I am not suggesting that the provision remained in force or that it imposed a capital control in November. U.S. Treasury, June 28, 2025

A tax measure of that kind could discourage investment by reducing expected after-tax returns. Calling it a potential deterrent to capital flows describes that economic effect. It should not be confused with a legal prohibition on moving money or converting currency.

Withdrawal of the proposal removed the immediate threat. It did not necessarily settle the longer-term question for an overseas investor: how dependable is the tax framework under which this income will be earned and received?

That is why an improvement in the political total does not automatically restore C2. A foreign parent considering an acquisition or a new facility needs to make assumptions about several years of after-tax cash flows. Greater confidence in those assumptions would provide a firmer basis for an upgrade than a favorable reading of the election alone.

A dollar invoice can still be paid late

The July 2026 downgrade to Payment Delays, C3, concerned commercial frictions associated with the Strait of Hormuz crisis. My assessment reflected higher-risk insurance, freight and demurrage charges, interrupted supply chains, and the time importers needed to audit costs and complete compliance checks. A shortage of dollars was not the explanation.

The wider disruption is documented. Holland & Knight’s April maritime analysis discusses delays and the resulting disputes over demurrage, force majeure and insurance. A ship can be delayed for reasons beyond the parties’ control while the parties still disagree about who must bear the bill. Holland & Knight, April 8, 2026

Insurance can complicate settlement further. In July, the Lloyd’s Market Association issued a clause addressing payments associated with Hormuz transit. It said those payments would not be covered and that cover for the relevant vessel would cease where the clause applied, reflecting sanctions and terrorism-law concerns. Lloyd’s Market Association, July 23, 2026

These sources support the shipping, contractual and compliance context. The C3 downgrade is my rating judgment; the sources do not establish a representative measure of invoice delays across the United States.

For the company awaiting payment, the practical problem can be straightforward. The customer may be creditworthy. The invoice may be in dollars. Payment still waits while someone checks a freight surcharge, determines responsibility for demurrage or obtains the documents needed for clearance. Meanwhile, a manufacturer relying on just-in-time components may also face a production interruption. Delivery delays and settlement delays are separate problems, although the same disruption can produce both.

Consider an illustrative $1 million receivable financed for an extra thirty days at an annual cost of 8%. The additional financing cost is about $6,575, before any production losses or penalties. That is simply $1 million multiplied by 8% and by 30/365. These are hypothetical amounts, but they show how a delay becomes a cost without a currency shortage or a default.

Clearer charges, fewer disputed invoices, faster compliant settlement and more dependable shipping would support an improvement in C3. A change in congressional control may influence the policies behind those conditions. It cannot establish that the invoices are already being paid more promptly.

What earlier midterms tell us

There are precedents for parts of the present pattern. Before the 1998 midterms, Government Stability and External Conflict weakened while Socioeconomic Conditions and Investment Profile improved. The total fell two points over the preceding twelve months. Different parts of the assessment were already moving in opposite directions.

Before the 2006 midterms, Government Stability lost one point while Socioeconomic Conditions gained 1.5. Other changes offset one another and the total stayed unchanged. Anyone looking only at the aggregate would have missed the shift underneath it.

The year before the 2010 vote produced a 3.5-point decline, close to the four-point fall before the 2026 midterms. Government Stability accounted for two points of the 2010 decline. Socioeconomic Conditions also worsened then; they improved in the year before this election.

The institutional starting point in 2026 is less familiar. Neither Military in Politics nor Bureaucracy Quality fell during the twelve months preceding any midterm from 1986 through 2022. Both fell before the 2026 contest. Democratic Accountability was already at its lowest level in the supplied history.

I would use those comparisons to identify what needs attention, rather than to predict a repeat of a particular election cycle. November’s improvement addresses some of the recent weaknesses. The unchanged Investment Profile is a reminder of how much remains outside that recovery.

What markets have priced in the past

There is a substantial research basis for asking whether political conditions affect asset prices. Pástor and Veronesi describe how political uncertainty can increase required returns, volatility and correlations, with evidence consistent with their model. Bekaert and colleagues connect political risk ratings to sovereign borrowing spreads and foreign investment across countries. Those findings give us reasons to test the U.S. series; they do not supply a ready-made valuation for a U.S. rating point. Pástor and Veronesi, 2013, Bekaert and colleagues, 2014

We compared monthly changes in the total rating with broad U.S. equity returns including dividends, changes in VIX, and changes in the spread between seasoned Baa corporate bond yields and ten-year Treasuries. The equity measure comes from Kenneth French’s value-weighted U.S. market series. VIX measures option-implied near-term volatility. The Baa spread includes credit, liquidity and other influences, so it cannot be treated as a pure political premium. French data definition, VIX, Baa–Treasury spread

Across 512 months from February 1984 through September 2026, the correlation between rating changes and same-month equity returns is −0.01: essentially zero. Tests of the following month’s returns also fail to establish a reliable relationship.

The credit result is more suggestive. Across 513 months through October 2026, rating improvements accompany narrower spreads, with a correlation of −0.14. The simple regression associates a one-point improvement with about 2.5 basis points of narrowing. It explains only about 2% of monthly spread-change variation.

That association remains negative before 2022 and when selected financial-crisis and pandemic months are excluded. Economic controls weaken it. Once we also allow for past spread changes and a time trend, the confidence interval includes zero. I would not turn the estimate into a forecast of the borrowing-cost benefit from November’s three-point improvement.

For changes in monthly-average VIX, the all-month correlation is −0.12 across 441 observations. Its apparent strength also depends on the measurement and statistical specification. The evidence is too uneven to claim that the ratings independently explain market movements.

The striking midterm result—and its limitation

The midterm sample produces a much stronger relationship. Across the nine elections from 1990 through 2022 for which VIX is available, October-to-November rating changes correlate −0.84 with changes in monthly-average VIX. Larger upgrades coincide with larger falls in average volatility.

Removing any single election leaves a correlation between approximately −0.82 and −0.90. Using only the eight midterms before 2022 gives −0.90. A single unusual election is not responsible for the result.

But change the volatility measure to month-end observations and the correlation falls to −0.14.

The 1998 figures show why that matters. October’s VIX averaged 36.61 but had already fallen to 28.05 by the last trading day. November averaged 26.22 and ended at 26.01. The decline between monthly averages was 10.39 points; between month-end observations, it was only 2.04. Much of the difference came from the path within October, before the vote.

There was also plenty of other news for investors to absorb. The Federal Reserve’s November 17, 1998 statement reported a cumulative 75-basis-point rate reduction since September and said financial markets had settled materially since mid-October. In November 2002, another month of rising equities, lower average VIX and an improving political score, the Fed cut its target rate by fifty basis points. These are competing explanations within the same monthly windows. Federal Reserve, November 17, 1998, November 6, 2002

The exceptions are useful too. In November 2014, the political rating improved one point, equities rose and average VIX fell, but corporate spreads widened seven basis points. The Fed had announced the end of its asset-purchase program on October 29. Different markets were processing more than the election. Federal Reserve, October 29, 2014

In November 2022, the rating did not change. The broad equity market nevertheless gained 4.94%, average VIX fell 6.71 points and corporate spreads narrowed ten basis points. That month also included the November 10 inflation release, which reported October consumer-price increases of 0.4% month on month and 7.7% over twelve months. The monthly comparison cannot tell us how much of the market movement belongs to each development. BLS, November 10, 2022

There is a genuine pattern of volatility relief around these midterms. There is much less basis for calling it a post-election trading signal. The sample is small, monthly averages include pre-election days, and we do not have the historical publication dates needed to establish whether rating changes preceded the market moves.

The questions I would take to an investment committee

A market price can move in anticipation of a better outcome. A company has to wait for the outcome itself. That difference is particularly relevant to November’s assessment.

An investor who already owns an asset may benefit if greater confidence reduces the return other investors demand to hold it. Someone buying after that repricing faces a different calculation. A price gain does not necessarily mean the asset now offers a higher expected return. Nor does a fall in volatility tell us that tax treatment or invoice settlement has become more dependable.

I would begin with the exposure. For an overseas investor, the question may be the reliability of after-tax U.S. income. For an importer, it may be freight costs, insurance or the arrival of a critical component. For a supplier, it may be how long cash remains tied up after an invoice is issued. Each requires evidence that the relevant condition has changed.

The historical market tests help put limits on the claims we can make. The component scores help direct the investigation. They are especially useful when several improvements in the total coexist with a commercial weakness that remains unresolved.

That is what I see in the move from 71 to 74. The assessment records political improvements worth recognizing. It also leaves Investment Profile below its reading before each of the previous seven midterms. I would want to see progress on tax predictability and the conditions behind delayed payments before assuming that the investment environment has recovered along with the total.

Diderot’s caution

In his 1751 contribution “Arithmétique politique,” Diderot described calculations intended to help government understand such matters as population, food, work and commerce. He valued observed evidence and warned that political changes could overturn the assumptions behind the calculation. Diderot, “Arithmétique politique”

His warning remains apt: “les calculs & leurs résultats ne sont pas moins variables que les évenemens.” I read that as a reason to examine what supports a number, and to revisit it when circumstances change. It would be a stretch to enlist him as a theorist of modern asset pricing.

For this election, the arithmetic is plain enough. Seven points lost since October 2022. Three regained in the November assessment. An Investment Profile score still at a twenty-five-year low.

What happens next will depend on whether the political improvement produces more dependable conditions for capital. I will be watching the treatment of foreign investors’ income, the cost and availability of shipping insurance, and the settlement of commercial obligations. Those will tell us more about the durability of this recovery than the first market reaction to the vote.

Data and methods

Political data: supplied US_Political_Risk_Monthly_1984-2026.xlsx, “United States,” January 1984–October 2026. All 514 monthly records are present; component bounds and totals reconcile. The November assessment is supplied separately for this analysis. Internal checks do not independently authenticate every observation against PRS’s underlying database.

Financial and macroeconomic series were downloaded on 4 November 2026. Equity total returns equal French’s Mkt−RF plus RF. VIX monthly averages use available daily closes; month-end values use the last available trading-day close. Credit changes use FRED BAA10YM, expressed in basis points. Analyses use changes rather than correlations between persistent levels. Controls include changes in the 10-year Treasury yield and unemployment, monthly inflation and industrial production growth. Additional sensitivity tests include a lagged dependent variable and time trend. Missing data are not imputed. Regression intervals use six-lag Newey–West standard errors and normal approximations.

The C2 and C3 downgrade explanations were supplied by Dr Christopher McKee on 5 November 2026; he confirmed that the C2 rationale concerns continuing tax-policy uncertainty after Section 899’s removal. Public sources support the proposal’s chronology and the wider Hormuz disruption and compliance context, rather than independently establishing the rating decisions or their weights. The supplied reference to delays exceeding 45 days is not used as a verified quantitative finding: neither its precise measure nor a supporting source has been established. The WSJ report supplies contemporaneous market context and is excluded from all historical market calculations.

References

Diderot, Denis. “Arithmétique politique.” Encyclopédie, vol. I, 1751, within the entry “Arithmétique.” Original text; attribution and edition information, Les Classiques des sciences sociales.
The PRS Group. ICRG Methodology. Political components, definitions and scoring.
Pástor, Ľuboš, and Pietro Veronesi. 2013. “Political Uncertainty and Risk Premia.” Journal of Financial Economics 110(3): 520–545. Article.
Bekaert, Geert, Campbell R. Harvey, Christian T. Lundblad, and Stephan Siegel. 2014. “Political Risk Spreads.” NBER Working Paper 19786. Working paper.
Kenneth R. French. Data Library and factor construction.
Cboe. VIX, retrieved via FRED VIXCLS.
Federal Reserve Bank of St. Louis. BAA10YM, GS10, CPIAUCSL, INDPRO, and UNRATE.

Additional references for the 5 November update

U.S. Congressional Research Service. Enforcement of Remedies Against Unfair Foreign Taxes in H.R. 1, the One Big Beautiful Bill Act. June 9, 2025. Report.
U.S. Department of the Treasury. G7 Statement on Global Minimum Tax. June 28, 2025. Statement.
Sean T. Pribyl and Christopher R. Nolan. When the Smoke Clears: Maritime Contract Claims After Hormuz Disruption. Holland & Knight, April 8, 2026. Analysis.
Lloyd’s Market Association. LMA publishes new clause and guidance note addressing transit fee payments in the Strait of Hormuz. July 23, 2026. Announcement.
David Uberti, Jack Pitcher and Sam Goldfarb. The Blue Wave Sets Off a Potential Regime Change in Markets. The Wall Street Journal. Report consulted November 5, 2026.