Midterm elections and AI spending fears set stage for volatile week ahead
Wall Street faces a turbulent week as investors brace for the US midterm elections and fresh concerns over the sustainability of AI infrastructure spending. The Nasdaq and S&P 500 ended the previous week lower after a sharp Friday reversal, driven by fears that a Democratic victory could trigger stricter AI regulation and opposition to data center construction. Key corporate earnings from Apple, AMD, and Pfizer are scheduled alongside the monthly jobs report, which is expected to show strong hiring but limited wage growth. While some analysts see potential gridlock as stabilizing for bonds, others warn that political uncertainty could exacerbate volatility in tech, defense, and crypto sectors.
Key points
- The Nasdaq Composite fell 2% for the week, reversing a 2.3% mid-week gain, while the S&P 500 dropped 0.6% and the Dow declined 0.9%.
- Apple is set to report earnings on Monday, with shares recently hitting all-time highs despite a high valuation of nearly 40 times earnings.
- AMD reports on Tuesday, serving as a key test for the semiconductor sector following recent disappointing results from Intel.
- The US midterm elections occur on Tuesday, with Democrats expected to win at least one house of Congress, potentially impacting AI regulation and data center approvals.
- The monthly jobs report is due on Friday, with expectations for strong hiring but modest wage growth, which could influence Treasury yields and inflation outlooks.
Background
Recent labor data has shown a slowdown, with the September jobs report adding only 29,000 positions and wage growth slowing to 3%. This 'low-hire, low-fire' environment has contributed to ongoing inflation pressures and weak consumer purchasing power, setting a cautious backdrop for the current week's economic indicators.
How outlets are covering it
CNBC's Jim Cramer warns that volatility may persist, advising investors to avoid calling the bottom in the Nasdaq and to focus on high-quality companies despite strong earnings potentially failing to lift stocks. Bloomberg highlights that a Democratic victory could lead to stricter AI oversight and opposition to data centers, potentially hurting growth, while also noting risks to defense and crypto sectors. The Spectator suggests that a 'blue wave' could destabilize markets further, especially if combined with geopolitical tensions, such as potential US-Iran conflicts. Financial Times notes that investors are trimming growth bets due to fears of the US economy's exposure to AI, though the full article is behind a paywall.
Why it matters
The intersection of political outcomes and corporate earnings could significantly impact market sentiment, particularly in the technology and AI sectors. A shift in congressional control may lead to regulatory changes that affect data center construction, defense spending, and crypto legislation, while the jobs report will provide crucial insights into the labor market's resilience and inflation trajectory.
What to watch
Investors will closely monitor Apple's earnings on Monday, AMD's results on Tuesday, and the jobs report on Friday. The outcome of the midterm elections will be critical in determining the political landscape for AI regulation and infrastructure spending. Additionally, the CNBC Investing Club will hold its annual meeting, where portfolio risks and market strategies will be discussed.
- Cramer’s week ahead: Expect more volatility as tech earnings, midterms loom CNBC
- Investors trim growth bets over fears of US economy’s AI exposure Financial Times
- AI Policy Fears Grip Stock, Bond Traders With Midterms Days Away Yahoo Finance
- Your stock portfolio increasingly hinges on the bond market — and the midterm elections MarketWatch
- Don’t expect calm after the midterms The Spectator
Want the full story? Read the original reporting
Read on CNBC