Investors who bought into listed companies after the Trump administration took equity stakes have seen outsized returns over the past year. That trade is now facing a more complicated setup as U.S. midterm elections approach and Democrats are seen as having a chance to reclaim at least one chamber of Congress.
On Aug. 29, Bloomberg reported that stronger polling for Democrats has led market strategists to warn that if the party wins control of either the Senate or the House, congressional probes into companies backed by government ownership could follow. The concern is not limited to Washington optics. According to the report, both corporate brands and share prices could come under pressure. At the same time, a shareholder lawsuit is challenging the legality of the government’s investment in Intel. If a court rules that the CHIPS Act did not give the Commerce Department authority to exchange subsidies for equity, the legal footing for the broader portfolio of government stakes could be shaken.
Sharp gains were real, but many faded quickly
The Trump administration adopted an unusual approach: using public funds to take equity in publicly traded companies and channel state capital directly into private business. That move drew quick interest from both retail and institutional investors, many of whom started looking for the next company likely to be selected.
On paper, the returns have been striking. Intel has risen more than 300% since reports emerged last year that the Trump administration was in talks to take a stake. MP Materials is up 87% since the Department of Defense invested $400 million in July last year. Trilogy Metals has gained 73% since the U.S. government agreed in October last year to acquire a 10% stake.
But the structure of those gains has raised doubts. Trilogy Metals jumped from $2.09 to a high of $10.60 within days of the announcement, then fell back sharply and was recently trading at $3.62. MP Materials climbed more than 150% in the five weeks after the government investment, but then dropped nearly 27% over the following year. Intel peaked in June after Trump announced that Apple would work with the company to design and manufacture semiconductors, and has since fallen 37%, making it one of the worst-performing stocks in the S&P 500 over the same period.
Aniket Shah, Jefferies’ global head of Washington, sustainability and transition strategy, described the market logic behind the rally this way: the government becomes both a customer and a public backer, and investors assume that increases the company’s odds of success. Whether that logic can hold is now being tested.
If Democrats flip a chamber, hearings could become the next front
The most immediate political risk for these stocks is the midterm election. Polling cited in the report suggests Democrats have a path to winning a majority in at least one chamber of Congress. If that happens, control of committee gavels would shift with it, opening the door to formal investigations.
Senator Elizabeth Warren has already moved on the issue, sending a letter to Commerce Secretary Howard Lutnick questioning the legality of the government’s investment in Intel. If Democrats win the Senate, Warren would become chair of the Senate Banking Committee and would have statutory power to subpoena witnesses and obtain documents.
Henrietta Treyz, co-founder of research firm Veda Partners, said committees led by Democrats calling corporate executives and government officials to testify is “one of the key risks investors need to be watching right now.” She also said Democrats “will take every opportunity, for as long as possible, to go after the president.” In her view, hearings on Capitol Hill would carry direct risk for both company brands and stock prices.
There is precedent for a backlash. In 2009, the Bush and Obama administrations were heavily criticized by Republicans over the government’s stake in General Motors, helping fuel the Tea Party movement. The difference, the report noted, is that the earlier intervention centered on rescuing companies near bankruptcy, while the current approach is framed as actively picking winners.
The Intel lawsuit could have implications beyond one company
The legal threat may prove even more consequential than the election outcome. A shareholder lawsuit now before the courts challenges the legality of the government’s Intel deal and could shape how similar investments are viewed.
The suit argues that the CHIPS Act did not authorize the government to make equity a condition for awarding subsidies. It also accuses Intel’s board of breaching fiduciary duties and characterizes the deal as an “extortionate” taking. Lutnick has asked the court to dismiss the case, arguing that the arrangement is authorized under federal law and is critical to the U.S. defense industrial base. Intel Chief Executive Lip-Bu Tan and other board members have also filed motions to dismiss.
Josh Lipsky, senior director of the Atlantic Council’s GeoEconomics Center, warned: “If a court ultimately rules that the CHIPS Act does not give the Commerce Department the authority to do with Intel what it did, that will have broad implications for many of these transactions.”
Ann Lipton, a law professor at the University of Colorado, said a ruling along those lines would also cast doubt on other equity investments made by the Commerce Department using CHIPS Act funds, including those involving IBM and GlobalFoundries.
Mark Malek, chief investment officer at Siebert Financial, said his firm owns Intel shares but has not added to the position. “It was really the government investment that changed the story and became an important support for the stock. If that factor disappears, what happens next? That’s the reason we haven’t added,” he said.
As the political trade fades, fundamentals matter again
Above the election risk and the court fight sits a broader market question: if the rally was driven more by politics than by business fundamentals, the underlying momentum may be fragile from the start.
Gina Martin Adams, chief market strategist at HB Wealth Management, said the risk tied to government “endorsement” has always been present. “It may have had a positive effect on the stock price, but to some extent that may be investors chasing a political trend, and that makes the momentum fairly fragile,” she said.
Matt Gertken, head of geopolitics and U.S. political analysis at BCA Research, described the current moment as an “interventionist path” that has not yet been fully tested or absorbed by the U.S. system. “There will be twists and turns in the process,” he said.
At a broader level, the Trump administration’s strategy changes the traditional logic of state intervention in private industry. In the past, the government stepped in mainly to rescue distressed companies. In this case, it is backing selected winners. That shift produced sizeable gains in the short run, but it also left investors exposed to a mix of political, legal and market risks as the midterm countdown continues.