Midterm elections are in November, and voters will head to the polls to vote for U.S. Representatives, for some U.S. Senators, and on numerous local issues. Currently, Republicans have control of all three major national political branches: the presidency, the Senate, and the House of Representatives. That seems likely to change, as incumbent parties tend to lose ground in midterm elections, particularly when voter approval for the president is so low (according to Reuters/Ipsos, only 34% of Americans approve of the job President Trump is doing, down from 47% at the start of his term due to concerns over the war in Iran and the cost of living). Indeed, the latest forecasts from prediction markets website Kalshi.com give the Democrats a better-than-75% chance to take over the House of Representatives, while the GOP is poised to narrowly hold on to the Senate. Historically in midterm election years, stocks have stumbled in early autumn on the prospect for change. Average S&P 500 returns in the third quarter of midterm election years since 1980 are -1.5%, including a 5% slide in 3Q22. However, once the results are in, investors respond positively to the likelihood of potential Washington gridlock (meaning that the odds are low for major legislation changes on taxes, trade, regulations, the economy, or the markets). This positive sentiment is reflected in relative outperformance in the final months of the midterm year, as 4Q S&P 500 returns have averaged 4.1% in midterm election years since 1980, including an 8% pop in 4Q22.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

Houston-based Waste Management Inc. is North America's leading provider of comprehensive waste management services, serving municipal, commercial, industrial and residential customers. The company has six business segments: Collection, Landfill, Transfer, Recycling, Healthcare Solutions and Renewable Energy. It is also a leading developer, operator, and owner of landfill gas-to-energy facilities, and the largest recycler in the U.S. The company has approximately 61,000 employees. The WM shares are a component of the S&P 500.

Headlines remain the order of the day, with major stock indices lower on Thursday as investors awaited developments in the Middle East that overshadowed the barrage of corporate earnings reports. In this ever-changing environment, the current newsflow has aggression increasing between the U.S. and Iran but no major outbreak as of yet. Domestically, markets will need to parse on Friday the news that the U.S. Court of International Trade struck down new 10% global tariffs imposed by President Trump, ruling them illegal because they overstepped presidential authority.