Blue Wave, Red Screens, Green Opportunity

U.S. stocks had their worst week since the April 2025 tariff shock. A Democratic sweep in the midterms turned a Wednesday rally into a Thursday sell-off as artificial intelligence (AI) stocks came under pressure and a much stronger-than-expected jobs report Friday raised the odds of another Federal Reserve (Fed) rate hike. On the week, the S&P 500 fell 2.7%, the Nasdaq Composite dropped 3.4% and the Dow slipped 1.0%. The Nasdaq has declined four straight weeks and is in “correction territory,” more than 10% below its October record.

The swings were dramatic as market participants struggled to price in the election results. The Dow gained more than 1,500 points Wednesday as election uncertainty shifted behind the markets. On Thursday, attention shifted to Democratic wins in states that host data centers, the massive facilities that power AI. In Texas, the governor-elect campaigned on temporarily halting new construction as fears mounted that the buildout would be derailed. The Nasdaq 100 fell 6.4%, its worst day since March 2020, and the S&P 500 lost 4.4%. Semiconductor stocks dropped more than 12%, the second-largest single-day decline in the last 20 years. Roughly $2.5 trillion in market value vanished as the CBOE Volatility Index (VIX), Wall Street’s fear gauge, jumped nearly 70% in a single day for one of the largest moves since the index’s inception in 1990. Investors who had borrowed to buy stocks were forced to sell, which deepened the drop. Chip stocks did manage to bounce on Friday but did little to repair the weekly decline.

History is on the side of investors, with the S&P 500 higher six months after every midterm election since 1970. Additionally, there has been no indication that current data center projects have been paused or pushed back. The overhang likely will trigger a review of 2028 and 2029 projects, with capital expenditure forecasts for hyperscalers still on pace to grow meaningfully next year. The political landscape does introduce more uncertainty, but some positive takeaways remain, including a lower risk of overbuilding, higher lease rates for compute—leading to more attractive return on investment—and the possibility for improved hyperscaler credit fundamentals.

The Fed did not meet last week, but it remained in focus. Employers added 165,000 jobs in October versus the roughly 60,000 economists had estimated, and unemployment fell to 4.1%. According to CME Fed Futures, the markets now see about an 80% chance the Fed raises rates a quarter point at its Dec. 9 meeting. The Fed raised rates in September, its first increase since 2023, and held rates at 3.75% to 4.00% during the October meeting, with two officials dissenting in favor of another hike.

On a brighter note, since the election, West Texas Intermediate crude oil has declined more than 15% from highs as renewed strikes on Iran have been downplayed by the United States. This is a key area the Fed is watching as the supply-shocked oil market has been a driving force for inflation numbers. Meanwhile, Treasury yields ended the week slightly lower, with the 10-year yield finishing at 4.86%, down about 8 basis points and well below the 5.3% peak touched in early October. Yields fell after the election and during Thursday’s sell-off as investors rotated into bonds for safety.

Putting it all together, we view this pullback as an opportunity to stay bullish, not a reason to retreat. Valuation is the main reason. After last week’s decline, the Nasdaq 100 trades at about 20 times next-12-month earnings, and the equal-weight S&P 500 at about 16 times, each in line with its 20-year median. In simpler terms, even the technology-heavy part of the market that had run the furthest is priced in line with history, and so is the average company. With a resilient job market and solid profit growth, a reset like this is a healthy pause.

Our view is that quality matters over the long term. In a market driven by policy headlines, investors should keep a focus on companies with strong balance sheets, durable earnings and the cash flow to fund their own growth rather than speculative, debt-reliant names. Defensive sectors such as consumer staples, health care and financials hit record highs earlier last week, a reminder that diversification adds protection when markets become dislocated. Leadership broadens quickly, and for long-term investors, that favors a portfolio built around those quality characteristics mentioned above.

Looking ahead, inflation takes center stage. October’s Consumer Price Index (CPI) arrives Tuesday with “core” inflation, which excludes volatile food and energy prices, expected to cool to 0.2% for the month from 0.3%. A hotter reading would strengthen the case for a December hike. Producer prices follow Friday, and the bond market is closed Wednesday for Veterans Day. The earnings calendar will be in focus, with AI names such as Cisco, Applied Materials, CoreWeave and Nebius reporting results that will give investors a check on AI demand ahead of Nvidia’s report on Nov. 17.

Earnings Calendar Nov. 9-13

Links to previously published commentaries can be found at benjaminfedwards.com/Latest Investment Insights/Market Commentary/Market

6100734 – Exp. 11/30/2027