Democrats won control of both chambers of Congress on Tuesday, taking the Senate with at least 54 seats and a House majority above 250, with a couple of close races still being counted. It has been a volatile week for markets, and the picture is more nuanced than the headlines suggest.
How the week played out
Stocks rallied hard on Wednesday. The Dow rose about 3%, its best day in more than a year, and the S&P 500 gained 1.6%, as investors welcomed a clear outcome and a president who said he would accept it. Thursday reversed it. The S&P 500 fell 4.4% and the Nasdaq fell 5.5%, closing in correction territory, more than 10% below its October record. Fears that a Democratic Congress would target AI and data center development drove the selling, with Nvidia down more than 9% and AMD down more than 17%.
Friday brought a partial rebound. The Nasdaq closed up 1.2% and the S&P 500 gained 0.4%, while the Dow slipped 0.4%. Dip buying in semiconductors led the move, with the Philadelphia Semiconductor Index up 4.3%. The recovery was narrow, however, and the Nasdaq remains roughly 10% below its record. The S&P 500 is up about 8% for the year.
A strong jobs report adds a new wrinkle
The October jobs report was well above expectations. The economy added 165,000 jobs against a consensus of 70,000, prior months were revised up by 84,000, and unemployment fell to 4.1%. Consumer sentiment also improved, with the University of Michigan index rising to 51 from 48 as inflation expectations eased.
Good news on the economy was not entirely good news for rates. The 10-year Treasury yield rose to 4.86% and the 2-year to 4.52%, and New York Fed President John Williams said inflation has been “too high for too long,” reinforcing expectations that the Federal Reserve could raise rates further. Two forces are now pulling on markets at once: concern about AI spending and persistent pressure on borrowing costs.
Not just an election story
It is tempting to blame the election, and rhetoric from some Democrats about slowing data center construction clearly added fuel. But we believe the weakness in technology and AI stocks began before the vote, and AI shares lagged even in Wednesday’s rally. Investors were already uneasy about valuations, earnings prospects and credit conditions in AI, and the election supplied a trigger.
We remain convinced AI will be transformative for productivity across the economy. We also expect shakeouts along the way, particularly among newer infrastructure providers and software companies facing higher financing costs and questions about how quickly customers can generate enough revenue to cover the buildout. Friday offered some evidence of resilience, as OpenAI’s CFO said the company will keep investing in AI infrastructure despite voter pushback over data centers.
We also expect public concern about electricity costs and local disruption from data centers to be taken up by a Congress with a fresh mandate. That could mean new rules or higher energy and water costs for builders, though we do not expect it to materially change the profitability of the largest players. The details will matter, and they will not be known until the new Congress convenes in January.
How we are thinking about it
Volatility is likely to stay elevated, and we would not be surprised by more days like Thursday. Selling AI exposure outright would give up the long-term opportunity, and we do not think that is the right response. Diversification is. Treasuries rallied during Thursday’s selloff, which shows bonds can offset AI-specific risk, though Friday’s yield move is a reminder that bonds carry their own sensitivity to a stronger economy and a hawkish Fed.
History also argues for patience. Since 1980, the S&P 500 has averaged a 13.7% gain in the year following a midterm election, across 11 midterms. The pattern is stronger when the White House and Congress are controlled by different parties, as they now are. After divided-government outcomes, the index averaged a 15% one-year gain, compared with 11.5% under single-party control. Past results are never a guarantee, but they suggest that election-driven volatility has not typically been a reason to abandon a long-term plan. (source below)
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Download: Markets After the Midterms: Separating the Election From the AI Story
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Source
https://www.cnbc.com/2026/11/02/stock-market-after-midterm-elections-sp-500-history.html
