Please see the below article from Tatton Investment Management discussing market uncertainty ahead of the US midterm elections, the UK budget, Anthropic’s planned IPO and the market reaction to Lula’s re-election in Brazil, received this morning – 02/11/2026
Overloaded with unknowns
Stock markets recovered early last week, and government bond yields fell – until Google owner Alphabet’s earnings unsettled investors, sending its shares down 13% on Thursday. Sentiment is still brittle. Investors feel there are too many unknowns, not least this week’s US midterm elections.
Chancellor John Healey’s budget contained plenty of measures, but their average value was tiny. There were small revenue raisers, like a higher surcharge on banks, and good news for mainstream savers: the cash ISA allowance will stay at £20,000; for larger amounts there will be a tax surcharge. Otherwise, this was finally a budget worthy of the ‘mini’ moniker.
Fiscal headroom fell, which isn’t bad per se, but it leaves UK finances more precarious. If rumours of a post-midterm US strike on Iran are true and yields climb again, higher interest payments would likely remove any remaining headroom. Hamstrung by Labour’s 2024 manifesto and his own MPs, Healey couldn’t make sweeping changes. That’s why many suspect Andy Burnham might call another election next year.
Back to Alphabet’s results, it was its search revenue growth that disappointed – tellingly losing out to Google’s own AI query segment. Investors also disliked Alphabet’s negative cashflow, as the company is no longer able to fund its AI infrastructure investments entirely just from ongoing income. With Microsoft beating free cashflow estimates by $10bn (and faring better than Alphabet for it) investors are now clearly prioritising cashflow over AI spending. The bigger test will be Anthropic’s IPO in mid-November. A $1.5tn-$2tn valuation looks outlandish, but no more so than SpaceX’s IPO in June.
The Fed’s interest rate pause was expected but markets predict a hike in December, and possibly two more next year. Inflation remains above target, US growth is strong and American consumers feel surprisingly confident.
That still won’t help Trump’s Republicans in the midterms. Markets fear Trump might try to overturn election results – which is a bigger risk if Senate results are close. Investors also fear a post-midterm attack on Iran, pushing oil prices to $113pb. Hopefully, those uncertainties will clear this week.
Anthropic’s blockbuster IPO will test AI investors
AI firm Anthropic is set for perhaps the largest ever IPO next month. The Claude maker filed its S-1 share prospectus form last Monday and will reportedly float $100bn of shares at a target valuation of $1.5tn-$2tn. Anthropic hasn’t confirmed those numbers but, if they’re right, the issuance would eclipse SpaceX’s record $85.7bn raised in June.
The filing did reveal an $81bn loss in the first half of 2026 – though $72bn came from convertible notes (loans that become shares upon IPO) revalued alongside the company. Still, operating losses were $693mn, and it has promised to spend $800bn on datacentres in commitments running until 2045. However, against these challenging financials sits exceptional revenue growth: $33bn from the start of the year until September, up 633% from just $4.5bn a year earlier, plus net revenue retention at 900%.
Coming into a multi-trillion IPO with $693mn in operating losses strains belief. But, as the FT’s Lex column argued, it’s misguided to seek a ‘fair’ valuation from historical numbers. Anthropic isn’t pitching investors the past; it’s pitching a slice of a new industrial revolution.
It’s an atypical proposition: the prospectus lists risks from legal troubles with the US government to AI’s potential to destroy humanity. The founders’ 50.1% ironclad voting share also means investors get no say. We’ve been cynical about CEO Dario Amodei’s existential AI warnings before (a government-enforced slowdown might be a convenient excuse to stop borrowing so much) but that doesn’t make those warnings wrong. At least the pitch is more down to earth than SpaceX’s, as Claude is already a tool many businesses find extremely useful and are willing to pay good money for.
The timing, however, isn’t ideal, with confidence in the AI boom waning again, just like a year ago around the same time. Analysts look evenly split. There will be demand – from retail investors and Nasdaq-linked funds – but whether it meets Anthropic’s lofty targets is hard to say. Anything near the target would show there’s still life in the AI trade.
Brazil’s Lula shock
President Lula da Silva’s surprise re-election rocked Brazil’s capital markets last week. Far-right Senator Flavio Bolsonaro was expected to win after topping the first round, but Lula surged in the second to claim an historic fourth term. Markets expected a Bolsonaro victory, and the Brazilian stock market fell a very considerable 13.9% on Monday. Long-term bond yields spiked, and Brazil’s currency, the Real, suffered its worst daily loss against the dollar since 1999.
On the other hand, the sell-off was a mirror image of the rise that came before. Bolsonaro pledged market-friendly reforms and deep spending cuts to tackle a deficit worth 9.5% of GDP, and Brazilian stocks rose practically in lockstep with his chances. Lula’s win undid those expectations. The bond and currency moves followed more or less the same pattern – though US investment banks Morgan Stanley and Goldman Sachs do see some additional fiscal risks if Lula enacts campaign spending policies.
Prolonged effects on emerging market (EM) assets are unlikely. Broader EM indices are mostly dominated by East Asian chipmakers. Even for Latin American equities, this was a sudden adjustment in the policy outlook, reversing an opposite adjustment weeks ago. Once the Bolsonaro trade fully reverses, there’s no inherent reason to expect Brazilian stocks to underperform other EM stocks. And while extra spending commitments might worsen the bond outlook, it’s doubtful how many Lula can implement, given Brazil’s congress swung to the right. The veteran Lula has a history of compromising with opposition politicians too.
Lula’s relationship with the Trump administration is also less antagonistic than sometimes assumed – in policy terms that is, if not rhetoric. Trump will reportedly not back Bolsonaro’s claim that he is Brazil’s rightful ruler, and Trump has rescinded tariff threats against Brazil before. The strategic importance of Brazil to the US (South America’s largest oil producer with ample reserves of rare earth minerals) suggests that Washington will adjust to Lula’s fourth term – just as markets will.
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Marcus Blenkinsop
2nd November 2026