The smart money on Wall Street is more worried about the GOP’s midterm prospects than the average investor — and you can partly thank Home Depot and McDonald’s, On The Money has learned.
The conventional wisdom — whether you’re consulting Kalshi and Polymarket, the talking heads on financial TV or the day traders on Reddit — is that the Democrats will win the House while the Senate is still largely a toss-up; despite decent polling numbers for Dems running far left loons in Texas and Michigan will likely allow the GOP to keep the upper chamber.
But the high-paid traders on Wall Street — who do actual homework before placing their massive bets — see more risk. In particular, they have noticed how consumer-focused stocks are getting crushed, signaling weaker economic trends in middle America — and warning signs about President Trump’s working-class base.
True, the Dems are embracing socialism with oddball candidates at the fringes. DSA types led by our very own Mayor Zohran Mamdani have gained traction in NYC, but it’s a harder sell in the aforementioned Texas and Michigan where Dems elected screwballs like and Abdul El-Sayed.
Moreover, the major indices — Nasdaq, Dow and S&P — are all at record levels. Employment and GDP portray a strong economy. People are working and wages seem to be up. Inflation, even with the Iran conflict juicing oil and gas prices, is relatively in check.
That’s what the optimists argue, at least. But delve deeper into the data and the trend isn’t necessarily the GOP’s friend.
First, top-line numbers often mask the real economy. Joe Biden gave us 9% inflation at one point. Under President Trump it’s between 3.2% and 3.4%. But those numbers only measure the rate of change. The problem is that prices continue to go up, testing new and ever more painful heights.
Trump’s tariff agenda hasn’t helped, and it’s one reason inflation remains above the Fed’s long-held 2% target. Chairman Kevin Warsh can’t cut short-term rates — to do so would signal to the bond market that he’s a dove and likely spike the yield on the all-important 10-year Treasury where consumer loans are priced.
The 10-year is already under pressure from inflation and competition for capital for the AI infrastructure buildout, which has provoked Treasury Secretary Scott Bessent to intervene, buying Treasurys to suppress yields (which move in the opposite direction of prices).
That is just the beginning. Larry McDonald from the Bear Traps Report points to two charts that speak directly to how the average American consumer feels about the economy, as opposed to speculators jumping on the AI bandwagon that is powering the major indices.
The first is a stock chart for Home Depot, a bellwether for the middle-class housing market. The second is for McDonald’s. Both have underperformed the S&P for more than a year, a strong indication that working-class consumers are cutting back because of rising prices and tepid wage growth.
“These charts are painting an ugly picture for Trump and the Republicans,” McDonald tells On The Money. “These are consumer-facing stocks, not diluted by big tech names that are pumping indices.”
Of course, I can find plenty of naysayers. Bob Sloan of S3 Partners, a data firm that tracks long and short interest in stocks, says the negative bets on McDonald’s, Home Depot and other US consumer discretionary stocks he tracks are pulling back from a peak of 10.6% in July to 10% this week (Disclosure: Bob is my partner on the Risk and Return Podcast).
McDonald’s, in fact, hit a 10-year high in short interest in July before it began pulling back, signaling a weakening of bearish sentiment, S3’s data shows IMHO, Trump voters have lots of reasons to turn out for the GOP given the lefty surge of the Democrats.
Still, it seems that some of the savviest players on Wall Street are getting more worried about the price of houses and burgers. The GOP and investors alike should take note.