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After the US midterm elections, the stock market first fell due to political concerns, and then rebounded strongly due to factors such as AI regulation, election uncertainty receding, and corporate profit prospects.
After the results of the US midterm elections were released, the stock market trend was breathtaking, and investors made in-depth analysis from various angles. First, as the election situation gradually became clear, the stock market suffered a huge blow. The market generally believed that compared to the Democratic Party,republican party The greater “anti-business complex”, now that they control both houses of Congress, the miracle of corporate profits that drove the stock market over the past two years will no longer exist; But after this wave of spontaneous reactions, unexpectedly, the stock market boomed the day after the election, and the rise was astonishing.Yahoo News financial reporter Brian Sozzi believes there are three major reasons for this dramatic trend.
First, the midterm election results will significantly disrupt plans to expand artificial intelligence data centers, as voter reaction to rising utility bills, unstable power grids, and water use is driving a political shift toward tighter monitoring. This is seen as a positive development for hyperscale companies like Google parent Alphabet and Amazon, as they will be forced to cut expenses and thereby boost free cash flow.
The decline in free cash flow is at the heart of the recent selloff in AI stocks, so it would be better to be clear about the cash flow prospects of the larger companies that are the main drivers of the market.
Secondly, as the elections end and the uncertainty that has engulfed the market over the past few weeks fades away, investors will be able to more precisely invest their funds in targets they find suitable.
StockTrader’s Almanac notes that in the six months following the last 19 midterm elections, the S&P 500 index has gained an average of 14.18%.
Third, the discussion by Goldman Sachs strategist John Hatzius is also a sign of this “post-election rally”.
Hatzius said the Democrats’ unexpected landslide would give them a stronger bargaining chip in negotiations with the White House, but it would also reduce the influence of smaller factions in the caucus; Democrats are expected to use the fiscal year deadline to limit the war with Iran, roll back some tariffs and reverse spending cuts enacted last year.
Summary FAQ
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The market was initially worried that after the Democratic Party took control of Congress, it would increase regulations and suppress corporate profits, so selling pressure first appeared; But then investors reassessed AI, policies and profit prospects, and funds returned to the stock market, leading to a rebound.
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The election outcome could increase scrutiny of data center expansion, forcing hyperscalers such as Alphabet Inc and Amazon.com Inc to rein in spending. Although it brings obstacles, it can also improve free cash flow and ease market concerns about the valuation and cash consumption of AI stocks.
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The second key is that the election uncertainty has disappeared, and investors can invest money more clearly; Additionally, the market has also refocused on corporate profits. Historical data shows that the S&P 500 has increased in the six months following the last 19 midterm elections.
