AI Skepticism and Midterm Elections Drive Volatile Week for US Markets

Key points

• The S&P 500 dropped 1.8% and the Nasdaq fell 2.9% on Friday, extending a losing week for tech-heavy indices.
• Intel shares tumbled nearly 29% after a report, while Alphabet and Amazon saw declines due to disappointing capital expenditure forecasts and revenue misses.
• US midterm elections are scheduled for Tuesday, with Democrats widely expected to win the House of Representatives, potentially increasing regulatory scrutiny on AI and data centers.
• Apple, AMD, and Palantir are among major tech firms reporting earnings this week, alongside over 100 other S&P 500 companies.
• The October nonfarm payrolls report is expected to show 55,000 new jobs, a significant increase from the 29,000 added in September, though manufacturing jobs are expected to remain flat.
• A $6.3 billion hack at Binance, the largest in crypto history, rattled digital asset markets, with ether and BNB falling sharply despite promises to cover losses.

Background

Recent archive coverage highlights that the S&P 500 typically performs well in the eight trading sessions surrounding midterm elections, though current conditions may disrupt historical patterns. Earlier reports noted that the Federal Reserve held interest rates steady while upgrading its economic assessment, yet concerns persist regarding job growth. The current volatility follows a period where AI infrastructure spending was a primary driver of market gains, now facing scrutiny over financial returns and energy costs.

How outlets are covering it

Reuters and Investing.com emphasize the 'AI-wary' sentiment, noting that persistent fears about financing and returns are troubling investors. CNBC highlights a rotation into defensive sectors like healthcare and energy, with analysts suggesting the market is broader than perceived. Yahoo Finance frames the sell-off as an 'expectations correction' rather than a fundamental breakdown, citing strong cloud growth at Amazon despite stock declines. The Financial Times, behind a paywall, suggests investors are trimming growth bets due to fears of the US economy's exposure to AI. While some strategists warn that a Democratic 'blue wave' could negatively impact tech names through increased regulation, others, like JanusHenderson’s Seth Meyer, argue that long-term capital allocation for AI infrastructure is insulated from single-cycle political changes.

Why it matters

The convergence of major tech earnings, a pivotal jobs report, and midterm elections creates a high-stakes environment for asset prices. A shift in congressional control could alter the regulatory trajectory for data centers and crypto, directly impacting the profitability of AI-heavy firms. Additionally, the October jobs report will provide critical insight into labor market health, influencing Federal Reserve policy and broader economic resilience. The recent crypto hack at Binance also raises questions about cybersecurity and regulatory frameworks in the digital asset space, potentially affecting investor confidence in the sector.

What to watch

Investors will monitor Apple’s earnings on Monday and AMD’s results on Tuesday for signs of AI demand strength. The October nonfarm payrolls report on Friday will be a key indicator of labor market health, with expectations for 55,000 new jobs. The outcome of the midterm elections, particularly in key states like Texas and Ohio, will determine the likelihood of increased regulatory scrutiny on data centers and crypto. Market participants will also watch for any further volatility in crypto assets following the Binance hack and assess whether defensive sectors continue to outperform tech.